- There are more people willing to purchase the Pound (56%) than to sell the currency (44%)
- 45% of positions are long and 55% are short
- Traders' average three-month forecast is 1.5013
- Resistance is right above the spot price at 1.4850/40, yesterday's low at 1.4780 may act as a floor
- Upcoming events: US Non-Farm Employment Change, Unemployment Rate, Average Hourly Earnings
The Sterling mostly underperformed yesterday, but the losses were limited. The largest drop was recorded against the Euro, -1.05%, followed by -0.73% against the New Zealand Dollar and -0.72% against the Swiss Franc. Interestingly enough, GBP/USD stayed unchanged (+0.04%), even though the UK data disappointed and the US data surprised to the upside.
Activity in the British construction sector, which accounts for some 6.3% of the country's total GDP, cooled more than expected in March, undermined by concerns over May's general election. The monthly Markit/CIPS UK construction PMI dropped to 57.8 last month following a rise to 60.1, the highest level in four month in February. Expectations were for the index to ease to 59.5 in the reported month. Yet, the gauge remained confidently above the contraction line for the 23rd straight month. Growth weakened across the industry, while the slowdown was most marked in the civil engineering sector. The cooler pace of construction growth is due to some businesses delaying spending ahead of the national election on May 7, Markit reported. Nevertheless, construction firms appeared to be highly optimistic about their prospects over the course of next 12 months, with confidence reaching the highest level in nine years.
The data adds to mixed bag of news earlier this week, after the Office for National Statistics said the British economy grew stronger than previously estimated in the fourth quarter, while services sector contracted in January. Markit also reported activity in the UK manufacturing sector rose to the highest in eight months at the end of the first quarter, indicating the nation's economy has been keeping momentum.
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.
Bank holiday in the UK; all eyes on the NFP
Even if there were other events scheduled for today, the United States labour market data would still decide most of the fluctuations in the foreign exchange market. Additionally, the risks of a surprise are exacerbated by low levels of liquidity, making it easier for larger moves to occur. The Bureau of Labor Statistics is expected to report somewhat slower growth in hiring than a month ago, while the growth in the average hourly earnings should pick up.
GBP/USD stays in a tight range
Thin liquidity because of holidays and NFP report expectations keep volatility greatly decreased. The Cable remains unable neither to break the 20-day SMA, nor to push through the weekly S1. At the same time, the technical indicators are mixed, further obscuring the prospects for the pair. Still, the market overall is bearish, and we are looking for an eventual close beneath 1.47 to expose the seven-month down-trend at 1.43.
Daily chart
On the hourly chart immediate resistance is right above the spot price at 1.4850/40, created by the short-term down-trend resistance line and the 200-hour SMA. This hardens the case for a bearish outcome after today's trading. There are no particularly significant supports nearby, only at 1.4700, and yesterday's low at 1.4780 may well act as a floor.
Hourly chart
Traders continue to disagree
Just as yesterday, 45% of positions are long and 55% are short, meaning the sentiment is neutral. Concerning the pending orders, there are currently more people willing to purchase the Pound (56%) than to sell the currency (44%).
Elsewhere, attitude towards the Pound appears to be improving, though for now the tendency is weak. The share of bulls at SAXO Bank increased from 46 to 48%, and the percentage of long positions at OANDA went from 50 to 52%.
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.