GBP/USD takes another shot at 100-day SMA

Source: Dukascopy Bank SA
  • The portion of buy orders dropped 11% points to 53%
  • There are now 52% of traders holding long positions
  • The 100-day SMAs is preventing the pair from edging higher
  • The bottom target is the cluster around 1.5360
  • 65% of traders reckon GBP/USD will be at 1.54 or higher in three months
  • Upcoming events today: UK Construction PMI, US Factory Orders

© Dukascopy Bank SA

The Pound managed to post solid gains (0.40%) only against the New Zealand Dollar, despite a strong reading of the UK Manufacturing PMI. Losses of 0.20% were recorded against both the Aussie and the Swissie, followed by a 0.18% decline against the Euro and a 0.07% one versus the US Dollar. However, the Sterling also remained relatively unchanged against the Loonie and the Yen, adding 0.09% and 0.03%, respectively.

Factory activity in the UK surprisingly improved, surging to a 16-month high in the tenth month of the year, spreading optimism over the British economic outlook. A report of market research group Markit revealed that the UK manufacturing PMI jumped up from September's reading of 51.8 to a seasonally adjusted 55.5 in October. This figure indicates that the sector has been growing as any reading above the threshold of 50 points represents an increase in manufacturing activity, whereas one below the threshold implies the industry's contraction. Economists had forecasted the index to move down to 51.3 last month. According to the survey, the gain of 3.7 point in the PMI level was one of the sharpest booked over the near 24-year survey history.

The rates of growth in output and new orders accelerated in October, being in both cases the steepest since the middle of 2014. New export order advanced for the second month in a row as demand rose from clients in the Middle East, East Asia and the US. The sector's level of employment stepped up for the 30th consecutive month in October, as improved new orders intakes and attempts to clear backlogs of works prompted companies to increase capacity.


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UK Construction PMI and US Factory Orders



On Tuesday there are only two economic events worth mentioning: the UK Construction PMI and the US Factory Orders. The Construction PMI is released by the Chartered Institute of Purchasing & Supply and Markit Economics and shows business conditions in the UK construction sector. It is worth noting that the construction sector does not influence, either positively or negatively, the GDP as much as the Manufacturing sector does, but is still likely to cause volatility in Sterling crosses. According to the forecast, the PMI is expected to worsen, but other fundamental data suggests improvements possible. The second event, the US Factory Orders, is released by the US Census Bureau and is a measure of the total orders of durable and non-durable goods such as shipments (sales), inventories and orders at the manufacturing level which can offer insight into inflation and growth in the manufacturing sector. The Factory Orders value is expected to decline at a narrower rate, compared to the previous release. Although the figure is to remain negative, a reading closer to 0% is still a sign of improvement in this case.


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 at the beginning 2016."


GBP/USD takes another shot at 100-day SMA

The better-than-expected UK Manufacturing PMI was insufficient for the Cable to maintain trade near the 1.55 level yesterday. The pair encountered a rather strong supply at that point, but the exchange rate managed to hold above the 1.54 mark. Although technical indicators retain their bullish signals today, the 100-day SMA is still likely to prevent the Sterling of edging higher, whereas the cluster around 1.5360 keeps providing solid support. Nonetheless, the outlook remains positive, as the 20-day SMA is on the verge of crossing the 55-day one to the upside, suggesting a rally is to occur.

Daily chart

© Dukascopy Bank SA

Nothing changed on the hourly chart, as the pair underwent the expected consolidation. The 200-hour SMA also keeps sliding along the 1.5360 level, bolstering the daily chart's support cluster. Consequently, the Sterling has a solid chance of appreciating today, despite an open for a possible decline 60-pip area.

Hourly chart

© Dukascopy Bank SA



Neutral sentiment

There are now only 52% of traders holding long positions (previously 55%), while the portion of buy orders dropped 11% points to 53%.

The distribution between the bulls and bears at OANDA barely changed, as 51% of open positions are short and 49% are long. On the other hand, the proportion of bears at SAXO Bank increased once more, with the gap between short and long positions slightly wider. Bulls now take up 44% of the market, while bears-the remaining 56%.













Spreads (avg, pip) / Trading volume / Volatility



Majority sees GBP/USD above 1.54 in three months

© Dukascopy Bank SA

There appears to be no clear view in the market how the Cable is going to perform during the next three months, but 65% of survey participants reckon that GBP/USD will be at 1.54 or higher. Judging by the results of the poll conducted in October, 17% of traders expect the Sterling to cost between 1.58 and 1.60 US dollars in the beginning of February. At the same time, 13% of the estimates are that the UK currency will be worth somewhere between 1.54 and 1.56 US dollars in three months.

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