- The share of orders to acquire the Pound now takes up 74% of the market
- 68% of traders are long the Sterling today
- Immediate support is represented by the Bollinger band and the weekly S1 around 1.4960
- The weekly PP at 1.5058 is the nearest resistance
- 68% of traders reckon GBP/USD will be at 1.54 or lower in three months
- Upcoming events today: UK Manufacturing Production, UK Industrial Production, NIESR GDP Estimate, US JOLTS Job Openings
The Pound was in for another day of mixed performance, having appreciated against some major peers, but declining against the others. With the fall of oil prices, commodity currencies sustained losses, allowing the Sterling to advance 1.17% versus the Kiwi, 0.64% against the Loonie and 0.58% against the Aussie. However, the British currency lost 0.38% against the US Dollar and 0.16% against the Yen, while also remaining relatively unchanged against the Euro and the Swissie, adding 0.04% and losing 0.07%, respectively.
Business activity in the UK services sector rose at the fastest pace in four months in November, suggesting a stronger economic growth in the final quarter of the year. The Markit/CIPS UK services PMI climbed to 55.9 last month from 54.9 in October, offsetting the weakness in manufacturing and construction sectors. There were some signs in the services survey that price pressures were building, albeit from low levels. Input prices, which include wages, rose at the fastest pace in four months, something that is likely to cheer up the Bank of England. Markit's UK composite PMI, which combines data from the manufacturing, services and construction surveys, was steady in November at 55.7, the highest level since July. The British economy is on track to grow 0.6% in the fourth quarter, accelerating from the 0.5% pace in the July-September period. The Office for Budget Responsibility revised up the growth outlook for next year, saying it predicts the UK economy to grow by 2.4% in 2015 and 2016 - up one basis point for 2016 when compared to the July outlook. It also upped the growth outlook for 2017 by one basis point to 2.5%, before sliding to 2.4% in 2018, and slightly lower to 2.3% in 2019-2020.
The Bank of England announces its next policy decision on December 10. Traders are betting officials will keep the benchmark rate at a record-low 0.5% through 2016.
UK Manufacturing Production, NIESR GDP Estimate and US JOLTS Job Openings
The UK side brings the Manufacturing Production and the NIESR GDP Estimate in terms of fundamental data today. The Manufacturing Production is released by the National Statistics and measures the manufacturing output; the Manufacturing Production is significant as a short-term indicator of the strength of UK manufacturing activity that dominates a large part of total GDP. According to the forecast, the figure is expected to be flat, meaning that there were no signs of expansion or contraction compared to the previous release. The second important even, the GDP Estimate, is released by the National Institute of Economic and Social Research. This GDP is an estimate of growth over the last 3 months up to the report which comes out a month before the official announcement. The report is highly reliable and would influence the UK monetary policy. Last, but not least, is the US JOLTS Job Openings, which shows the number of job openings during the reported month, with exception of the farming industry. Despite its late release, it could still have a significant impact on the market, as the given report is a leading indicator of overall employment.
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 at the beginning 2016."
GBP/USD remains subject to weakness
The British Pound edged lower against the US Dollar on Monday, with the immediate support in face of the weekly PP limiting the losses. However, the weekly PP is now providing resistance and weighing on the GBP/USD. The Sterling could decline towards the support cluster around 1.4960, which would mean an almost complete erasure of last Thursday's gains. Nevertheless, a positive surprise in the UK fundamentals could help the Cable recover and retake the 1.51 major level, with the second target resting at 1.5138.
Daily chart
The GBP/USD extended its correction on Monday, with the 200-hour SMA failing at keeping the pair from edging lower. The Cable is maintaining its bearish short-term trend, until the fundamental data is released, which could spark a rally or cause a sell-off towards the down-trend.
Hourly chart
Market sentiment remains bullish
There are significantly more bulls today (68%), compared to 59% on Monday. At the same time, the share of orders to acquire the Pound added 16 percentage points, now taking up 74% of the market.
OANDA and SAXO Group now have a similar, yet different outlooks towards the GBP/USD. At OANDA 51% of traders are holding long positions and the remaining 49% - short. Meanwhile, the share of bulls at SAXO Group is taking up 46% of the market, up from 44% on Monday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.54 in three months
The majority of votes shifted to the bearish, as most of the survey participants (68%) believe the GBP/USD is going to cost 1.54 or less US dollars in three months. The most popular price interval is the 1.48-1.50, chosen by less than a quarter (23%) of the voters, while the second choice in popularity implies that the Sterling will cost less than 1.44 dollars in three months, chosen by 15% of survey participants. Meanwhile, the mean forecast for Mar 08 is 1.5106.