- 56% of all orders are to sell the British Pound
- Traders are equally divided between the bulls and the bears today
- Immediate resistance is represented by the weekly PP at 1.5084
- The Nov low at 1.5026 remains the nearest support
- 71% of traders reckon GBP/USD will be at 1.54 or lower in three months
- Upcoming events today: UK Construction PMI, US ADP Non-Farm Employment Change, US Revised Nonfarm Productivity, US Crude Oil Inventories, Fed Chair Yellen Speech, FOMC Members Lockhart and Williams Speeches, US Beige Book
The Pound experienced mixed performance over the day, not only advancing against some major peers, but falling against the others as well. The Sterling lost the most against the Kiwi and the Aussie, plunging 1.22% and 1.14%, respectively, followed by a moderate loss of 0.46% versus the Euro. The Pound also remained relatively unchanged against the Yen (-0.02%), while posting gains of 0.14% versus the Loonie and 0.17% against the US Dollar.
The British factory activity declined beyond expectations in November, however, still demonstrating solid growth after having reached a 16-month high in the prior month. More precisely, the Markit/CIPS PMI measure of business activity in the UK manufacturing dropped to 52.7 in November from October's 55.2. The figure came against analysts' projections of 53.6. Nevertheless, the manufacturing sector remained above average in 2015 expanding for 32 successive months.
As concerns the BOE's stress test measuring how well banks would deal with a financial crisis, all in all seven biggest banks in the UK were tested, namely Barclays, HSBC, Lloyds, Nationwide, Santander, Standard Chartered and Royal Bank of Scotland. The two latter lenders were singled out by the central bank for not meeting certain capital thresholds. In spite of that, the BoE said that neither of the two banks needed to raise additional capital and that both passed the exercise. Moreover, the BoE revealed its most recent Financial Stability Report estimating the threats to Britain's financial stability. The FPC stated that it projects the counter-cyclical buffer to be in the region of 1% of a bank's risk-weighted assets in the future. The BoE Governor Mark Carney pointed out that UK banks are more resilient now than they were before the financial crisis.
UK Construction PMI and US ADP Non-Farm Employment Change
From the UK side the Construction PMI is due today. It is released by the Chartered Institute of Purchasing & Supply and Markit Economics, it shows business conditions in the UK construction sector; however, the construction sector does not influence, either positively or negatively, the GDP as much as the Manufacturing sector does, hence, the impact on the Sterling is likely to be smaller. A slight weakness is expected in the given PMIs figure today, leaving the Cable with the US fundamentals to decide its fate.
From the US the most important event is the ADP Non-Farm Employment Change. The Employment Change is released by the Automatic Data Processing Inc. and is a measure of the change in the number of employed people in the US. Generally speaking, a rise in this indicator has positive implications for consumer spending, stimulating economic growth. The number of employed people over the previous month is forecasted to rise and provide some insight on the Friday's data. A number of other reports are due and several Fed officials are also scheduled to comment, which could provide additional impetus for 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 at the beginning 2016."
GBP/USD on the edge of dropping to a fresh 7-month low
The US Dollar weakened against the Sterling on Tuesday, amid the US ISM Manufacturing PMI showing signs of contraction. However, the weekly PP prevented any substantial gains, despite the Cable's attempts to climb over 1.51. The same resistance is likely to cause the pair to bounce back and technical studies are supporting this outcome. Meanwhile, the Nov low at 1.5026 remains the closest demand, but in wake of fundamental data the GBP/USD could fall towards the second target, namely the cluster around 1.4985.
Daily chart
Upon reaching the 200-hour SMA yesterday, the GBP/USD lost its bullish momentum and has been edging lower ever since. The Nov low remains the closest possible support if bulls fail to take over and the 200-hour SMA keeps weighing on the currency pair. In case of a breach, the 23.60% Fibo would be the next target before climbing to 1.53, namely the down-trend.
Hourly chart
Market sentiment in perfect equilibrium
Traders are equally divided between the bulls and the bears today. The number of orders to sell the British Pound added three percentage points, rising to 56% in the 100-pip range from the spot.
OANDA and SAXO Group are different in their outlooks towards the GBP/USD. At OANDA 54% of traders are holding long positions and the remaining 46% - short. Meanwhile, the share of bears at SAXO Group is taking up 56% of the market, up from 55% on Tuesday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.54 in three months
The majority of votes shifted to the bearish, as most of the survey participants (71%) believe the GBP/USD is going to cost 1.54 or less US dollars in three months. The most popular price interval is the 1.48-1.50, chosen by more than a quarter (26%) of the voters, while the second choice in popularity was the 1.46-1.48 price range, selected by only 15% of participants. Meanwhile, the mean forecast for Mar 02 is 1.5167.
Majority of Dukascopy Community members are bearish on the pair, with 64% of votes speaking in favour of pair's depreciation. Nevertheless, the pair is likely to reach 1.509 by this Friday.
Among the bulls a member of the Dukascopy Community, Likerty, shared his thoughts on the Cable's possible performance: "the Pound is ready for a new medium term bullish correction, but probably will stay slow within the next week."
Meanwhile, a trader with a bearish perspective towards the GBP/USD, Jignesh, believes that the Cable continues its bearish trend with renewed pressure in the last week. "The pair is however approaching some major support levels at the 1.50 level, where a major channel comes into play as well," he added.