- The gap between the buy and sell orders contracted to an insignificant value of 6 pp
- GBP/USD returns to 1.55
- GBP/USD is approaching the apex of the falling wedge pattern
- Upcoming events: US Consumer Confidence
Last week we learned that the productivity in the British labour market rose in all major sectors. This should provide the Bank of England with some relief as an increased productivity coupled with rising wages should limit any significant upward inflationary pressures. UK labour output picked up by 0.6% in the three months through September, the biggest advance in more than three years, although it remains below pre-financial crisis levels, according to the Office for National Statistics. Labour market productivity in the UK, which is measured by output per hour, rose 0.3% compared with the same period in 2013, but it remains 2% below its level in 2008, which is likely to restrain real wage growth. Productivity improved in all of the main sectors of the UK economy in the September quarter, by 0.5% and 0.6% in the production and the service industries, respectively.
The relationship between wage growth and productivity is crucial to inflation forecasting at the BoE. Wage growth, just like production, has been very slow in the last six years. Total pay, which includes bonuses, increased 1.4% in quarter to October while regular pay, excluding bonuses, rose by 1.6%, both above the current level of consumer-price inflation. Low inflation keeps the BoE firmly dovish. For the majority of the Monetary Policy Committee, the outlook for inflation justifies keeping the current level of interest rates.
US Consumer Confidence today at 3 pm GMT
At least some turbulence in GBP/USD may be observed already today, when we will get a high-importance update on the sentiment among the US consumers, which is expected to improve from the previous reading of 88.7 to 93. The next notable release concerning the well-being of the United Kingdom will be published on Jan 2, when Markit will be expected to report growth in the manufacturing sector of the economy.
GBP/USD returns to 1.55
Jean-Francois Owczarczak, the director of Fingraphs.com, says "the Cable has been correcting strongly", and notes that "it's not an impulsive move yet, but could become such if it [GBP/USD] were to move below 1.55. According to him, there's an important support we're approaching. If it is violated, it could "open more potential to the downside".
Daily chart
GBP/USD failed to cover all the distance to the six-month down-trend at 1.5650 as initially expected. Instead the currency pair made a U-turn soon after hitting the weekly pivot point at 1.5567. As a result, the Cable is once again testing 1.55, the key medium-term level. Should the monthly S1 and this year's low fail to stay intact, the falling trend-line together with the weekly S2 at 1.54 is likely to be tested next.
Hourly chart
Buy and sell orders at the same level
At the same time, the gap between the buy and sell orders in the SWFX marketplace contracted to an insignificant value of 6 pp, meaning there is no more real difference between them 100 pips around the spot price.