- The portion of orders to acquire the GBP fell down to 57%
- 62% of traders retain a positive outlook towards the Sterling
- Immediate resistance is represented by the weekly PP at 1.4802
- The weekly S1 at 1.4668 is the nearest support
- 55% of traders reckon GBP/USD will be at 1.50 or lower in three months
- Upcoming events: UK Services PMI, US ADP Non-Farm Employment Change, US Trade Balance, US ISM Non-Manufacturing PMI, US Factory Orders, FOMC Meeting Minutes
The British currency experienced mixed performance on Tuesday in spite of a strong reading of UK Construction PMI, appreciating against some major peers, but also declining against the others. The Sterling added the most against three currencies: 0.50% against the Euro, 0.42% against the Kiwi and 0.37% versus the Swissie. The save haven Yen was able to gain 0.60% against the Pound, while the Cable dropped only 0.28%. At the same time, the Sterling remained relatively unchanged versus the Loonie, gaining 0.04%.
British construction sector ended 2015 on a high note, as business activity in the sector rebounded from a seven-month low in November, thanks to an increase in commercial building on the back of the UK economic recovery. The Markit/CIPS Construction PMI climbed to 57.8, up from 55.3, surpassing economists forecast of 56.0. Within the sector, commercial construction enjoyed the strongest performance in December, followed by residential construction. The UK construction remains one of the most volatile components on the output side of GDP, and was among major downward drivers in the third quarter of 2015, when it dropped 1.9% in the reported period. However, Markits' data revealed that companies in the sector were optimistic about 2016.
Earlier in the week Markit reported weakness in the UK manufacturing sector. The Markit/CIPS manufacturing PMI dropped to 51.9 last month, sliding to the lowest level in three months, compared with 52.5 in November. Manufacturing failed to add to Britain's economic growth throughout the first three quarters of 2015, with the services industry being the main driver of economic expansion. The output and new order growth slowed further in the reported month.
UK Services PMI and US ADP Non-Farm Employment Change
The only relevant event concerning the UK economy is the Services PMI. This PMI is released by both the Chartered Institute of Purchasing & Supply and the Markit Economics, it is an indicator of the economic situation in the UK services sector. It captures an overview of the condition of sales and employment. It is worth noting that the UK service sector does not influence, either positively or negatively, the GDP as much as the Manufacturing PMI does. Nonetheless, it should have some impact on the Sterling crosses; the effect is likely to be negative, as the PMI is forecasted to worsen.
Concerning the US economy, attention should be paid to the US Trade Balance, the Employment Change figures, as well as the Services PMI, and of course – the FOMC Meeting Minutes. The most important event is the ADP Non-Farm Employment Change, it is released by the Automatic Data Processing, Inc. This Employment Change is a measure of the change in the number of employed people in the US. Generally speaking, a rise in this indicator has positive implications for consumer spending, stimulating economic growth. The second event is the US Trade Balance, which is released by the Bureau of Economic Analysis and the U.S. Census Bureau. It is a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the USD. These two economic data releases are forecasted to have mixed results, but, nonetheless, the FOMC Meeting Minutes is the most anticipated event. Information concerning the monetary policy in 2016 is to be provided, as well as another Fed rate hike might occur as early as today.
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 closing in on 2015 low
The Cable edged lower for the sixth time in a row on Tuesday, but without the immediate support cluster getting violated. However, this cluster weakened today and is under the risk of getting pierced, as the Bollinger band inched significantly lower and is now reinforcing the cluster around the 2015 low of 1.4565, which in turn should limit the losses. At the same time, a possibility for the bullish momentum to be regained exists if the US fundamental data disappointing, thus, weakening the US Dollar versus the Pound.
Daily chart
The possible trend-line failed to hold the GBP/USD from falling lower on Tuesday, which resulted in the Cable taking another step towards reaching the 2015 low. The Sterling keeps weakening ahead of the fundamental data as well, but bullish momentum could still be regained before the 2015 low is reached.
Hourly chart
Bulls remain strong
More traders (62%) retain a positive outlook towards the Sterling today, compared to only 51% on Tuesday. Meanwhile, the portion of orders to acquire the GBP lost 6% points, falling down to 57%.
SAXO Group and OANDA have different perspectives towards the GBP/USD. Among SAXO Group traders a perfect equilibrium has been reached; whereas 60% of OANDA traders have a positive outlook towards the Cable, compared to 61% on Tuesday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.50 in three months
The majority of votes is still on the bearish side, as most of the survey participants (55%) believe the GBP/USD is going to cost 1.50 or less US dollars in three months. According to the survey, the most popular choice was the one implying that the Sterling will cost between 1.42 and 1.44 dollars in three months, believed by 28% of the voters. Meanwhile, the second most popular choice is the 1.46-1.48 interval, voted for by 14% of the surveyed. At the same time, the mean forecast for Apr 06 is 1.4938.
Concerning the present week, sentiment experienced some changes, but the vast majority of all votes are still negative on the GBP/USD currency pair, namely 71% of them. The average prediction for Friday of this week is located around the 1.480 major level.
Maratamus, a member of the Dukascopy Community, believes the Sterling is to outperform the US currency. "To my mind, the Pound is totally oversold, thus I am going to buy hard," he commented.
Meanwhile, another trader under the nickname jz21 suggests the Cable is to weaken, as he said that it is likely the Sterling will come under strong selling pressure during the first week of January 2016."