- The number of purchase orders increased from 54 to 58%
- Bulls and bears have reached a perfect equilibrium
- 14% of the poll participants expect the British Pound to cost between 1.58 and 1.60 after a three-month period
- Immediate resistance lies in face of the Bollinger band at 1.5680
- The nearest support rests around 1.5613, represented by the 55-day SMA
- Upcoming events today: US Empire State Manufacturing Index, US NAHB Housing Market Index, US TIC Long-Term Purchases
The British Pound appreciated against most major peers last Friday. The Sterling added the most against the Euro, 0.81%, following with a 0.51% gain versus the Loonie and 0.46% versus the Kiwi. The Buck and the Yen were the toughest to advance against, as the Pound added only 0.22% versus the Greenback and 0.22% versus the Yen.
UK construction output rebounded in June, recovering from a slowdown recorded in April and May. According to the Office for National Statistics, output inched up 0.2% in the second quarter from the previous three-month period, beating expectations for an unchanged output. The stronger June performance helped the overall second-quarter growth. The largest upward pressure on the quarterly growth came from a steep rebound in private housing projects, increasing 3.9% from a drop of 0.8% in the previous three months. This partly reflects a post-election rise in the British housing market coupled with a strong demand for new houses. Private housing output also inched up on a monthly basis in June, up 0.3% from a plunge of 2.7% a month before. Measured on a monthly basis, output in the construction sector surged 0.9% in June from a month earlier, following the 1% decline. On the year, output in June was 2.6% higher, below economists' forecasts of a 3.3% rise but still the fastest growth since March.
According to the Markit/CIPS PMI data, business activity in the UK construction unexpectedly decelerated to 57.1 last month, from a four-month peak of 58.1 in June. This was mainly due to weaker activity in the residential building sector, which was the second slowest since mid-2013. Yet, the sub-sector remained the strongest from within the overall output, according to the PMI report.
Paul Bednarczyk, head of research at 4CAST, is optimistic with respect to the world's largest economy over the coming months, saying that "we should be seeing some better US numbers coming through," which will lead the Cable to 1.54. Meanwhile, the analyst considers that "over the next three months Sterling will perform well on a trade-weighted basis," but GBP/USD is still likely to decline to 1.4850. In the longer-term perspective, Bednarczyk is also bearish, setting his 12-month forecast at 1.42, which will be a story of Dollar strength rather than Sterling weakness.
US Empire State Manufacturing Index
The UK side is quiet on the economic data releases today, therefore, the only thing that could significantly influence the GBP/USD currency pair is the US Empire State Manufacturing Index. The given Manufacturing Index is the level of a diffusion index based on the surveyed manufacturers in the NY. Basically, it shows business conditions, to which businesses react quickly and could see signals of futures economic activity and adjust their sentiment accordingly. The Index is expected to rise, thus, showing signs of improvement; however, according to historical data the results might fail to meet expectations and weigh on the US currency.
Ross Walker, economist at Royal Bank of Scotland Group, suspects that GBP/USD may descend to 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross mentioned that "the main driver in many ways, as well as the main support in recent times, have been the expectations that the Bank of England will raise interest rates at some point next year, probably the beginning 2016."
GBP/USD keeps testing 1.5670
Unlike the 55-day SMA, the weekly R1 failed to contain the Cable, which resulted in a surge last Friday. The Sterling added 25 pips against the Greenback and even opened trade higher on Sunday, poised to extend the rally. The nearest resistance is located at 1.5680, namely the upper Bollinger band, while a strong cluster is supporting the GBP/USD from below around 1.5615. Risks of edging lower persist, as the US fundamentals might weigh on the given pair. And the 1.5670 area, which held the Cable for the last five months, is unlikely to give in easily today.
Daily chart
The Cable refused to trade below the 1.56 major level, which caused the pair to edge higher. However, gains were still limited by the 1.5660 level; it prevented the GBP/USD from appreciating during the last two weeks. Although the Sterling attempted to rally again today, the resistance keeps holding for now, while the trend-line should cause a rebound in case of a decline.
Hourly chart
Bulls barely prevailing over bears
Bulls and bears have reached a perfect equilibrium, whereas the number of purchase orders increased from 54 to 58%.
Other market participants now have a different outlooks towards the GBP/USD. The SAXO Group traders' sentiment worsened again today, with 62% of all positions being short. At the same time, OANDA's market sentiment slightly worsened, with 58% of their traders holding short positions, compared to 54% previously.
Spreads (avg, pip) / Trading volume / Volatility
14% of the poll participants expect the British Pound to cost between 1.58 and 1.60 dollars after a three-month period
According to the survey conducted between July 17 and August 17, 14% of traders assume the GBP/USD currency pair will cost either between 1.58 and 1.60 dollars within three months. However, the second place is now taken by three price intervals, namely 1.50-1.52, 1.52-1.54 and 1.60-1.62, all three selected by 11% of the voters. The mean forecast for November 17, on the other hand, is 1.5691.