- The portion of purchase orders returned to its Monday's level of 52%
- Today 56% of all positions are long
- 16% 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 200-day SMA around 1.5325
- The nearest support rests around 1.5275, represented by the Bollinger band
- Upcoming events today: UK Construction PMI, US ADP Non-Farm Employment Change, US Revised Nonfarm Productivity, US Factory Orders, US Crude Oil Inventories, Fed's Beige Book
The British currency declined against most major peers on Tuesday, amid poor Manufacturing PMI data. Amid risk aversion, the Sterling lost 1.54% against the Japanese Yen, following with a 1.02% decline versus the Euro. The Cable dropped down only 0.40%, as the poor US fundamental data helped to counterweight the UK's data. Gains of 1.02% and 0.44% were registered versus the Aussie and the Loonie, while the Pound remained relatively unchanged against the Kiwi, adding only 0.11%.
Growth in British manufacturing sector slowed in August as export orders dropped for a fifth straight month. UK manufacturing PMI dropped to 51.5 last month, compared with 51.9 in July. Markit Economics said companies blamed the decrease in foreign demand on the strong Sterling, weak sales in the Euro land and China's economic slowdown. Moreover, after two years of job creation, August saw a reduction in headcount in the sector. Looking ahead, the British Chamber of Commerce predicts the next few months as a challenging time for manufacturing. In its latest quarterly economic survey, the BCC found that manufacturing was an obstacle for the UK's economic growth.
A separate report showed UK mortgage approvals surged more than expected in July, while net lending on property rose the most in seven years, reinforcing the view of strengthening momentum in the housing market. Home-loan approvals rose to 68,764, the most since February 2014, and up from a revised 67,069 in June. Net mortgage lending was 2.7 billion pounds, the most since July 2008. This was the third straight rise in mortgage credit, which had slowed earlier in the year. Business lending rose 734 million pounds in July after plunging a record amount in the preceding month, the BOE said.
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.
UK Construction PMI and US ADP Non-Farm Employment Change
The UK Construction PMI shows business conditions in the UK construction sector, which influences the GDP not as much as the manufacturing one. Nevertheless, the Construction PMI is expected to show signs of improvement, despite having declined in the preceding month's release. Furthermore, later today the US ADP Non-Farm Employment Change is due, which will be a closely monitored release, as its strong figures might influence the Fed to raise interest rests in September. The Employment Change is forecasted to increase, thus, boosting the US currency; however, the share of Factory Orders in the US is expected to slump from 1.8 to 0.9%. Ultimately, the Fed's Beige Book report is to show the overall US economic condition, a positive result of which would only boost the Fed's decisiveness of a September rate hike.
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 stuck around 1.53
The Sterling fell to the lowest in in two months on Tuesday, as weak UK PMI data put pressure along with the plunging equity markets around the world. As a result, the support cluster around 1.5320 was pierced, with the trade closing at 1.53 major level. Even though the Cable remains supported by this psychological area, somewhat bolstered by the lower Bollinger band, risks of edging even lower still persist. However, today's poor US fundamentals could help the British Pound recover yesterday's losses, despite technical indicators remaining mixed.
Daily chart
The GBP/USD currency pair bounced back from the resistance trend-line yesterday, ensuring its intraday decline. The July low was easily pierced, while the major level of 1.53 provided sufficient support to stop the fall. Within the next two days, if the Cable remains relatively flat, a break of the trend-line to the upside might occur, restoring the Pound's bullish momentum.
Hourly chart
Bulls keep growing stronger
Today 56% of all positions are long (previously 53%), whereas the portion of purchase orders returned to its Monday's level of 52%.
Other market participants also have a positive outlook towards the Sterling. For instance, 54% of OANDA's traders hold long positions, whereas among SAXO Group traders, 57% of all positions remain long.
Spreads (avg, pip) / Trading volume / Volatility
16% of the poll participants expect the British Pound to cost between 1.58 and 1.60 dollars after a three-month period
The 1.58-1.60 price interval remains the most popular choice among all of the votes, collected between August 2 and September 2. The given interval was chosen by 16% of the poll participants, whereas the second price range, selected by 13% of the voters, implies that the Sterling will cost between 1.48 and 1.50 dollars in three months. However, the mean forecast for December 2 is 1.5706.
The share of bullish votes has almost halved this week, compared to the previous five-day period. At the moment only 43% of them are going long on the Sterling, while the majority of Dukascopy traders expect to see GBP/USD lower by Sep 4. The average estimate is in turn placed precisely at the 1.5450 mark.
RacerX, a member of the Dukascopy Community, has a positive outlook towards the Sterling. "I believe that it will beat the Buck in the interest rate hike race", he explained. He also believes that the data from the UK suggests that inflation is going exactly towards the target and is strong enough to support a rate hike. Being on the bearish side of the barricade, aslamhammad anticipates the British Pound to decline against the Greenback, as "the price has found a resistance around 1.58 and is in a rising wedge formation." Aslamhammad also believes that the Non-Farm Employment Change data on Friday September 4 is to boost the US Dollar and therefore outperform the Sterling.