- The number of buy commands returned to its Friday's level of 54%
- 68% of all positions are long (previously 50%)
- 18% of the poll participants expect the British Pound to cost either between 1.58 and 1.60 or between 1.60 and 1.62 dollars after a three-month period
- Immediate resistance lies in face of the weekly PP at 1.5600
- The nearest support rests around 1.5575, represented by the 20 and 55-day SMAs, the support trend-line and monthly PP
- Upcoming events today: UK Construction PMI, US Factory Orders, UK BRC Shop Price Index
The Sterling experienced mixed performance over the day with rather serious losses. The Pound declined 0.28% against the Yen and 0.21% versus the Buck. The British currency remained completely unchanged against the Swissie for the second day in a row and remained relatively unchanged versus the Euro (-0.06%), the Kiwi (0.01%), the Loonie (0.05%) and the Aussie (0.08%).
British manufacturing growth accelerated in July, recovering from the lowest level in more than two years in June. According to Markit Economics, UK manufacturing PMI rose to 51.9, up from 51.4 in June, whereas economists had forecast 51.5. Nevertheless, the reading remained below the average of 54.3 the sector has had since April 2013. British factories struggle as the Pound's strength, which has gained 10% versus the Euro this year, and the economic weakness in the Euro zone weigh on demand from overseas. The pace of growth of new order dropped to 52.2, the lowest level since September 2014. In addition to that, the data showed prices paid by manufacturers for raw materials declined in July following a rise a month earlier for the first time since August 2014.
However, factory gate prices climbed to the highest level in almost a year. The central bank expected inflation to increase swiftly towards the end of 2015 as last year's decline in global oil prices filters through the numbers. Yet, official data showed British inflation slid back to zero in June. While the British economy is gaining momentum, risks from the external environment mean the Bank of England is likely to maintain interest rates at a record low this week. Market participants will now be waiting for both the construction and services PMI data before a slew of data due on Thursday this week, when the central bank releases its rate announcement, the Monetary Policy Committee minutes, and quarterly forecasts all at the same time.
Paul Bednarczyk, head of research at 4CAST, is optimistic with respect to the world's largest economy over the coming months, saying that "we should be seeing some better US numbers coming through," which will lead the Cable to 1.54. Meanwhile, the analyst considers that "over the next three months Sterling will perform well on a trade-weighted basis," but GBP/USD is still likely to decline to 1.4850. In the longer-term perspective, Bednarczyk is also bearish, setting his 12-month forecast at 1.42, which will be a story of Dollar strength rather than Sterling weakness.
UK Construction PMI and US Factory Orders
From the UK Side most attention should be paid to the Construction PMI data release. The PMI is expected to improve again today and there is a solid chance of the figures exceeding expectations, as, according to historical data, the Construction PMI tends to surprise to the upside. From the US side the Factory Orders is the only even of sufficient importance. After showing an actual result of -1% in the previous release, the change in total value of new purchase orders is expected to rebound and show signs of growth in today's release. However, we might see a worse-than-anticipated result, as the weak trend persisted for almost a year. Ultimately, the fundamental data results are expected to boost the Sterling and weigh on the US currency.
Ross Walker, economist at Royal Bank of Scotland Group, suspects that GBP/USD may descend to 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross mentioned that "the main driver in many ways, as well as the main support in recent times, have been the expectations that the Bank of England will raise interest rates at some point next year, probably the beginning 2016."
GBP/USD remains stuck around 1.56
The Sterling failed to remain flat against the US currency, as it tested the strong support around 1.5570. Nevertheless, the trend-line pushed the Cable back up to 1.5589, where it stabilised. Consequently, the British Pound is expected to regain the bullish momentum today and pierce the immediate resistance in face of the weekly PP. Technical studies, on the other hand, retain their mixed signals, creating a possibility of a slump, especially if the UK fundamentals disappoint today.
Daily chart
On the hourly chart the Cable still looks rather bullish, despite having breached the trend-line yesterday. The 200-hour SMA still prevented the GBP/USD from edging lower and seems to have caused a rebound today. Furthermore, the pair remained anchored around the 1.56 major level for almost five days and is expected to remain close by until the BoE's rate decision on Thursday.
Hourly chart
Bulls now prevailing over bears
Traders, on the other hand, have a positive outlook towards the Pound today, as 68% of all positions are long (previously 50%). The number of buy commands returned to its Friday's level of 54%.
Other market participants now have a different outlooks towards the GBP/USD. The SAXO Group traders' sentiment remains bearish and worsened further, as 60% of all their positions are now short (previously 59%). At the same time, OANDA's market sentiment remains unchanged, with 52% of their traders being short the Sterling.
Spreads (avg, pip) / Trading volume / Volatility
18% of the poll participants expect the British Pound to cost either between 1.58 and 1.60 or between 1.60 and 1.62 dollars after a three-month period
According to the survey conducted between July 04 and August 04, 18% of traders assume the GBP/USD currency pair will cost either between 1.58 and 1.60 or between 1.60 and 1.62 dollars within three months. However, the second place is also divided by two intervals, namely 1.46-1.48 and 1.56-1.58, both selected by 10% of the surveyed. The mean forecast for November 04, on the other hand, is 1.5689.