- Almost 60% of pending orders are to sell
- The share of long positions went up from 58 to 60%
- GBP/USD nosedives from 1.56, penetrates 1.5350
- Upcoming events: UK Construction PMI, US Total Vehicle Sales
The Britain's manufacturing sector growth slowed to the lowest level in three months in December, adding to doubts about success of the government's efforts to rebalance the UK economy away from property, services and consumer spending. The headline index, measuring activity in the manufacturing sector, which accounts for around 10% of the nation's economic output, fell to 52.5 in December, compared with 53.3 in both October and November and remained in expansion territory for 22 months in a row. UK manufacturing employment rose for the 20th consecutive month in December. Manufacturing businesses continued to receive new orders, but largely due to domestic demand, rather than export orders. Despite the slowdown in the sector's activity at the end of the year, 2014 appeared to be a strong year for the British manufacturing, said Markit.
Separately, the Bank of England credit report revealed the number of mortgage approvals dropped less than expected in November, but reached the lowest level since June 2013. The number of loan approvals declined to 59,029 in November down from 59,511 in the preceding month. While house prices were still markedly higher at the end of the year than at the beginning, economists expect the period of sharp price acceleration is over.
Focus on Construction PMI
While the Manufacturing PMI failed to increase confidence in the robust recovery of the United Kigdom, now it is Construction PMI's turn to give a new insight into the country's economic health. The rate of sector's growth is expectected to stay at relatively the same level.
GBP/USD nosedives from 1.56
Simon Smith, Chief Economist at FXPro, advises not overestiment bullish potential of the US Dollar. According to him, "we will see Dollar strength through the year, but it's going to be a very difficult year in terms of trends".
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
As the markets re-evaluated the possibility of the BoE tweaking the rates in 2015, the Sterling took a massive hit, plummeting more than 250 pips within a day. While this move confirmed the major resistance at 1.56, it also disproved the existence of the support at 1.5350, meaning there is rather a bearish channel emerging on the daily chart than a falling wedge. Consequently, we might expect a bullish correction to start around 1.52.
Hourly chart
Sentiment remains bullish, but more people plan to sell the Sterling
The bullish sentiment slightly intensified over the weekend, as the share of long positions went up from 58 to 60%. OANDA reports the same distribution between the bulls and bears. At SAXO Bank the difference is marginally smaller - 10 percentage points.
At the same time, the relative amount of sell orders placed 100 from the spot is more or less the same as last Friday — 59%, implying the nearby resistance is stronger than the nearby support.