- The distribution between the buy and sell orders has reached a perfect equilibrium
- Fewer traders are now long the Pound, only 46%
- The Pound is expected to cost 1.44-1.46 or 1.48-1.50 US dollars in three months
- Resistance lies at 1.4964, represented by the monthly PP, while the weekly PP (along with the 20-day SMA) act as a support around 1.4867
- Upcoming events: UK Services PMI, US JOLTS Job Openings
The Sterling performed rather well on Monday, appreciating against most major peers, except against the Greenback and the Loonie. The Pound experienced the largest gains of 0.70% and 0.66% versus the Swiss Franc and the Kiwi, respectively. Nonetheless, a loss of 0.27% was recorded against the Buck and 0.32% against the Canadian Dollar.
Activity in the British construction sector, which accounts for some 6.3% of the country's total GDP, cooled more than expected in March, undermined by concerns over May's general election. The monthly Markit/CIPS UK construction PMI dropped to 57.8 last month following a rise to 60.1, the highest level in four month in February. Expectations were for the index to ease to 59.5 in the reported month. Yet, the gauge remained confidently above the contraction line for the 23rd straight month. Growth weakened across the industry, while the slowdown was most marked in the civil engineering sector. The cooler pace of construction growth is due to some businesses delaying spending ahead of the national election on May 7, Markit reported. Nevertheless, construction firms appeared to be highly optimistic about their prospects over the course of next 12 months, with confidence reaching the highest level in nine years.
The data adds to mixed bag of news earlier this week, after the Office for National Statistics said the British economy grew stronger than previously estimated in the fourth quarter, while services sector contracted in January. Markit also reported activity in the UK manufacturing sector rose to the highest in eight months at the end of the first quarter, indicating the nation's economy has been keeping momentum.
Nicholas Ebisch, Corporate Account Manager at Caxton FX, agrees with Mark Carney's statement before the House of Lords Economic Affairs Committee that "at this point it would be foolish for the BoE to cut interest rates," since it would "add unnecessary volatility to inflation." Ebisch also mentioned that the BoE Governor's use of the word 'foolish' shows that "the MPC is firmly against the interest rate raise at this time."
In light of the recent data, Ian Stewart, chief economist at Deloitte, reckons "the UK has quite good momentum," which largely stems from the exports and the consumer. He also sees "decent recovery" in the investment, and this is likely to result in the UK being "one of the fastest growing economies in Europe." At the same time, Steward does not consider the elections to be a major risk factor for this recovery, though he does acknowledge a likelihood of greater volatility in financial markets in the run-up to the general election.
According to the economist, the general effect of strong economic data out of the UK should be supportive of the Sterling, particularly against the Euro, while concerning the speculations on the UK leaving the European Union, Stewart thinks this is a low-probability event, with the chances that are "well below 50%," since most political parties and a large portion of business and media would likely campaign in favour of continued membership.
UK Services PMI and US JOLTS Job Openings
The main event for today is the UK Services PMI data release. The figure is expected to improve; however, the Bureau of Labor Statistics is likely to release better US JOLTS Job Openings as well. Therefore, one might overweigh the other, depending on the magnitude of potential surprises.
GBP/USD fluctuates around 1.49
Even though GBP/USD remained well within the predicted boundaries, the US Dollar still put weight on the pair. The Pound's attempts to appreciate were in vain, and the 1.49 barrier was pierced to the downside once more. However, the weekly PP, along with the 20-day SMA, stopped the British currency from declining too much. The technical studies suggest a hike in the Sterling's value, but the daily bias remains bearish. From the downside, the Cable is still strongly supported by the weekly PP and the 20-day SMA, while the time to overcome the 1.50 obstacle is yet to come.
Daily chart
The Sterling appears to have entered an upward channel, but the pattern is not confirmed just yet. However, if that indeed is the case, the yesterday's loss can be explained with a bounce back from the resistance channel line, and then today a fall further than 1.4860 is highly unlikely.
Hourly chart
More bearish SWFX traders
Fewer traders are now long the Pound, only 46%, but the distribution between the buy and sell orders has reached a perfect equilibrium today.
SAXO Group traders retain a bearish outlook towards the Pound, as 52% of all positions are short. Meanwhile, the sentiment of OANDA's participants grew stronger, with 57% of traders being long the Sterling.
Spreads (avg, pip) / Trading volume / Volatility
The Pound is expected to cost 1.44-1.46 or 1.48-1.50 dollars in three months
The mean forecast for July 07 is 1.493; however, only 43% of voters expect the Sterling to cost more than 1.50 US dollars in three months. The most popular price intervals are 1.44-1.46 and 1.48-1.50, both chosen by 15% of the survey participants, while the second place is taken by 1.54-1.56, selected by 14% of traders.