- The portion of purchase orders declined from 60 to 54%
- Traders' sentiment remains bullish at 62%
- Immediate resistance is at 1.2250
- The closest support is around 1.2182
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Upcoming Events: UK Annual Budget Release, US ADP Non-Farm Employment Change, US Revised Non-Farm Productivity, US Revised Unit Labor Costs
Activity in the British services sector, which accounts for almost 80% of the economy, dropped more than expected last month amid inflationary pressures linked to the weak Pound, a private survey revealed on Friday. Markit/CIPS reported its Purchasing Managers' Index fell to 53.3 in February from 54.5 points seen in the preceding month, while market analysts anticipated a slight decrease to 54.2. Markit said that the latest PMI surveys were consistent with economic growth slowing to 0.5% in the Q1 of 2017 from the previous quarter's 0.6%, in line with the Bank of England's forecasts. Data suggested that the widely-expected Brexit economic slowdown finally started to hit the UK economy. Moreover, some analysts said that retail sales data, scheduled for the release on March 23rd, would probably paint even worse picture of the post-Brexit recession as the weak Sterling pushed prices sharply higher. Since the June 23 referendum, the Pound lost nearly 18% of its value. Back in February, input prices and prices charged by service providers advanced at the fastest pace in more than eight years.
After the release, the Pound dropped 0.4% against the US Dollar to trade at 1.2215, its seven-week low. Against the Euro, the Sterling fell 0.6% to trade at 86.16.
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US ADP Employment Change is the only event worth paying attention to today
Wednesday is a somewhat quiet day, but still, today the ADP Non-Farm Employment Change is due. It is a measure of the change in the number of employed people in the US. A rise in this indicator has positive implications for consumer spending, stimulating economic growth. Another event will be the Non-Farm Productivity, which shows the output per hour of labor worked. Non-Farm Productivity indicates the overall business health in the US, which has an influence on GDP.
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GBP/USD risks extending losses
The Pound suffered once again yesterday, falling deeper down against the US Dollar. The relatively sharp bearish momentum has been prevailing for nearly two weeks in a row now when the Cable retested the down-trend at 1.2570, and is expected to remain in the markets today as well. The GBP/USD pair could then fall towards 1.2119, namely the monthly S2, even though a possibility of bulls taking over still exists, as technical studies retain mixed signals. Moreover, a disappointment in today's ADP Employment Change reading is likely to weaken the US Dollar, which would allow the Sterling to take the opportunity and recover some of previous two-week losses.
Daily chart
© Dukascopy Bank SA
The GBP/USD currency pair reconfirmed the descending channel's resistance line yesterday and repeated the confirmation today as well. Due to consecutive tests there are risks of an eventual breakout from this trading range, while there is also a solid chance of the lower boundary getting retested if not today, then by week's end.Hourly chart
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Traders mostly bullish
Traders' sentiment remains bullish at 62%, but the portion of purchase orders declined over the day, namely from 60 to 54%.
A slightly more optimistic situation is observed elsewhere. For example, 65% of positions open at OANDA are currently long. This is more than the share of shorts (35%), barely sufficient for the sentiment to be called bullish. Meanwhile, sentiment at Saxo Bank is also bullish, with 69% of traders now being long and the other 31% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect the Cable to keep falling
© Dukascopy Bank SABy the end of the next three months traders expect the Cable to fall under the 1.22 major level, as 51% of survey participants believe so. While the current price is around 1.22, the average forecast for June 07 is 1.2365. The 1.20-1.22 interval is now the most popular price interval, having 19% of the votes, while on the second place is 1.28-1.30 price range, with 16% of poll participants choosing it. Furthermore, the 1.18-1.20 interval was chosen by 14% of the voters.