- The number of buy orders added six percentage points, up to 57%
- 40% of traders remain long the Sterling
- 11% of traders expect the Pound to cost between 1.48 and 1.50 dollars after a three month period
- Nearest support lies around 1.5086, represented by the 100-day SMA, while closest resistance rests at 1.5139, namely the monthly PP
- Upcoming events: UK Construction PMI, US Trade Balance, US Markit PMI Compsoite, US Marking Services PMI, US ISM Non-Manufacturing PMI
The British Pound experienced mixed performance yesterday. The Sterling suffered losses against most major peers; the largest one was recorded against the Loonie (0.69%), following with lesser ones versus the Kiwi, the Yen and the Greenback. The Pound remained relatively unchanged against the Swissie (-0.04%) and the Aussie (-0.01%), whereas a 0.33% gain was detected versus the Euro.
Activity growth in the UK factories unexpectedly slowed in April, as the strong Sterling undermined demand for British goods overseas. The UK manufacturing PMI declined to 51.9, down from 54.0 in the preceding month, intensifying fears about the weakness of economic recovery in the country. New export orders fell for the fifth time in seven months, as the Pound has gained 7% this year versus the Euro, the currency of the UK's top trading partner. The index of new orders slid to 52.9, the lowest level since September. The UK manufacturing PMI is one of the last economic reports before the May 7 general election, where voter opinion polls show neither main party will gain an outright majority. Besides, the survey of activity will sap hopes that the UK economy will fare better in the second quarter. The nation's economy expanded just 0.3% in the first quarter, the slowest pace since 2012, as industrial production and construction both contracted.
Total industrial production in the UK fell below market expectations in February, due to a sharp decrease in mining and quarrying, while oil and gas extraction experienced the biggest year-on-year fall in 18 months. However, manufacturing performed steadily, increasing 0.4% between January and February, with rises in seven of the 13 manufacturing sub-sectors.
Francesca Panelli an analyst from Oxford Analytica, gives her opinion on the overall health of the UK. She said that "uncertainty related to the upcoming UK election may weigh down the services sector, because it's a very sensitive sector to political development." Francesca expects the UK economic growth to pick up later in the year. She elaborated that "the slowdown in services should prove transitory, we had better evidence from higher frequency PMI over the first quarter of the year, and so I think momentum could improve ahead."
Jamie Jemmeson, head of trading at Global Reach Partners, talks about the upcoming elections in the UK. He says that the UK is sailing into murky waters right now, with no clear definition of what is going to happen next. Jamie adds that this is also going to lead to more Sterling volatility, so the investor has to be cautious.
He also gave his prospects on the effect the elections might have on the British currency: "I think that generally in terms of you looking at Sterling volatility, a Tory Government would be more positive for the Pound." He still mentioned that "Generally, if you look at historically how the Pound has re-answered, it prefers a Tory Government."
UK Construction PMI and US ISM Non-Manufacturing PMI
The most important events to influence the Cable today are the UK Construction PMI and the US ISM Non-Manufacturing PMI. Both indexes are expected to slightly worsen, thus putting pressure on their respective currencies. However, there is also the US Trade Balance, which is also likely to show weak data and, as a result, the soft US fundamentals should outweigh the UK's, thus strengthening the GBP/USD.
David Starkey, market analyst from Cambridge Mercentile, said that the BoE is most likely going to leave the rates unchanged. However, he also mentioned that "there is certainly a bit of dissent amongst the BoE, their chief economist suggested that there could be room for a cut if inflation continues to track negative, while Carney has openly and publicly suggested that the next move is going to be a hike." The analyst also gives his prospects for the near future, saying that "dissent is probably good, the BoE is going to be analysing the situation closely, the majority of the members still lean towards a hike, one descending voice does not suggest that it is going to be a cut in the near term."
GBP/USD stuck between 1.50 and 1.52
On Monday, the Sterling declined against the US Dollar, but not as much as anticipated. The Cable reached the 100-day SMA at 1.5086, which prevented the pair from falling deeper. Ultimately, the Pound stabilised at 1.5118. Technical indicators retain their bullish signals, suggesting a rebound today. At the moment the pair remains flat, stuck between the monthly PP and the 100-day SMA. The base case scenario is a surge towards 1.52, unless the US fundamentals outweigh the UK's, then we might actually see a dip towards 1.50.
Daily chart
For the third day the Cable is seen consolidating. A slight decline took place yesterday, following with rather steady trade between 1.51 and 1.5140. The pair is suck in this tight range, awaiting for the fundamental data. The 200-hour SMA was also crossed recently, which indicates further bearish momentum. Unless the Sterling manages to regain some value, a drop towards a two-week low is not far.
Hourly chart
Bearish market sentiment unchanged
For the third time market sentiment remains unchanged, with 40% traders being long the Sterling. The number of buy orders added six percentage points, up to 57%.
SAXO Group traders' sentiment slightly improved, as 62% of all positions are now short (previously 63%). OANDA traders' outlook towards the Cable, on the other hand, worsened, as 46% of all positions are now long, compared to 48% yesterday.
Spreads (avg, pip) / Trading volume / Volatility
11% of traders expect the Pound to cost between 1.48 and 1.50 dollars after a three month period
The mean forecast for August 5 is 1.5053, while the minority (49%) of survey participants expect the Sterling to cost more than 1.50 dollars in three months. The most popular price intervals is 1.48-1.50, chosen by 11% of the surveyed. The second popular choice is divided between four price ranges: 1.42-1.44, 1.44-1.46, 1.52-1.54 and 1.58-1.60, all selected by 10% of the voters.