- Distribution between the buy (52%) and sell (48%) orders was not subject to any change
- The longs (45%) and shorts (55%) are at the same levels as yesterday
- Traders' average three-month forecast is 1.5013
- Nearest resistance is the 200-hour SMA at 1.4860, while 1.4760/40 looks like a short-term floor
- Upcoming events: UK Construction PMI, US Trade Balance, Unemployment Claims, Fed Chair Yellen Speech, Factory Orders
Though yesterday's data did not disappoint, the Sterling mostly underperformed. The currency lost 0.53% against the Swiss Franc and 0.74% against the Canadian Dollar.
British manufacturing activity rose at the fastest rate in eight months in March, signalling the UK economy has been keeping its momentum. Markit research group said the UK manufacturing PMI climbed to a seasonally adjusted 54.4 in the reported month, compared with 54.1 in February and overshooting economists' expectations for an increase to 54.3 points. The index remained above the important 50-point threshold, i.e. in the expansion territory, for the 24th straight month. Growth of production and new orders accelerated, whereas production costs continued to decline. The report also showed exports improved in March as demand from overseas rise modestly. The average rate of job creation in the manufacturing sector has reached 5,000 a month. The data came a day after a report showed the UK economy grew more than initially estimated in the fourth quarter as consumers and exporters ensured Britain's longest streak of uninterrupted expansion since 2008.
Even though the UK economy is gathering steam, the Bank of England has said it will keep the benchmark interest rate at a record low as it monitors the implications of the decline in the inflation rate to zero. Markit added that in March, there was a "substantial decline" in factory input prices, driven by cheaper oil and a stronger Sterling.
Nicholas Ebisch, Corporate Account Manager at Caxton FX, agrees with Mark Carney's statement before the House of Lords Economic Affairs Committee that "at this point it would be foolish for the BoE to cut interest rates," since it would "add unnecessary volatility to inflation." Ebisch also mentioned that the BoE Governor's use of the word 'foolish' shows that "the MPC is firmly against the interest rate raise at this time."
In light of the recent data, Ian Stewart, chief economist at Deloitte, reckons "the UK has quite good momentum," which largely stems from the exports and the consumer. He also sees "decent recovery" in the investment, and this is likely to result in the UK being "one of the fastest growing economies in Europe." At the same time, Steward does not consider the elections to be a major risk factor for this recovery, though he does acknowledge a likelihood of greater volatility in financial markets in the run-up to the general election.
According to the economist, the general effect of strong economic data out of the UK should be supportive of the Sterling, particularly against the Euro, while concerning the speculations on the UK leaving the European Union, Stewart thinks this is a low-probability event, with the chances that are "well below 50%," since most political parties and a large portion of business and media would likely campaign in favour of continued membership.
Expansion rate of construction to subside
From the Sterling's side, today's main even is the construction purchasing managers' index, which is supposed to show slower growth in the industry than a month earlier. Meanwhile, the second part of the day will be marked with the US releases on the trade balance and the unemployment claims, but also with the change in the factory orders and the Yellen's speech.
GBP/USD reluctant to move
There was barely any change in the Pound-Dollar exchange rate yesterday, though the whole trading range amounted to more than 130 pips. The pair keeps crawling upward, but the gains should be capped by resistance near 1.49, as a break-out to the upside is not favoured by the technical indicators, nor is a dip beneath support at 1.48. Apparently, the market is anticipating Friday's events to serve as a catalyst for a move outside of these borders.
Daily chart
So far this week is uneventful. The fluctuations of the currency pair are contained by 1.4880 from above and by 1.4740 from below. As for today, the outlook is bearish, considering the price's proximity to the long-term moving average.
Hourly chart
No change in price, no change in sentiment
As the volatility was decreased, neither the distribution between the longs (45%) and shorts (55%), nor the distribution between the buy (52%) and sell (48%) orders was subject to any change, both remain at neutral levels.
46 50
There were also no particular shifts in the long/short ration at SAXO and OANDA. While the first broker reports there to be 46% of bulls, the Canadian-based foreign exchange company's traders are equally divided between the bulls and bears.
Spreads (avg, pip) / Trading volume / Volatility
Most forecasts are between 1.54 and 1.56
FX Community members are mostly bearish with respect to the Cable, as 61.5% of them expect the Sterling to underperform this week. Almost 30% of the survey participants see the currency being worth between 1.4650 and 1.4800 US dollars by the end of Friday, although the second most popular interval, which gathered 25.9% of all votes, is significantly above the spot price: 1.5100-1.4950.
One of the Sterling-bulls, rokasltu, expects that GBP/USD "will finally reach the 1.50 mark." On the other hand, aslamhammad has a different opinion on the pair's prospects, since according to him "the US non-farm payrolls and employment change will be better than expected," which will be bearish for the rate.
Looking at the longer-term forecasts, the traders remain net bullish towards GBP/USD, but are considerably less optimistic than before. While a month ago three-month consensus was at 1.5367, the current mean of the votes collected between the first days of March and April is at 1.5013. It is worth noticing, however, that the largest portion of the forecasts, namely 16% of them, fell between 1.54 and 1.56. The second place is tied (both gathered 13% of votes) between 1.48-1.50 and 1.44-1.46.