- Sell orders are outnumbering the buy ones by 2% points
- Bulls take up 65% of the market
- Immediate resistance is represented by the weekly PP at 1.4802
- The weekly S1 and the Bollinger band around 1.4675 are the nearest support
- 71% of traders reckon GBP/USD will be at 1.54 or lower in three months
- Upcoming events: UK Manufacturing PMI, UK Net Lending to Individuals, UK Mortgage Approvals, US Markit and ISM Manufacturing PMIs, US Construction Spending
Over the New Year's weekend the British currency declined against most major peers, with exception against the Swiss Franc and the Euro. The Sterling dropped the most against the Yen, namely 0.67%, followed by similar in volume declines against the Aussie (0.59%), the Loonie (0.55%) and the US Dollar (0.55%). At the same time, the Pound managed to add 0.61% versus the Swissie and 0.20% against the Euro.
The number of Americans applying for unemployment benefits increased sharply in the week ended December 26, with some of the gains might be attributed to temporary holiday factors. Initial jobless claims surged by 20,000 to a seasonally adjusted 287,000, according to the Labor Department, marking the largest one-week rise since February and the highest reading for jobless claims since the week ended July 4. Economists, however, had predicted a smaller increase in new claims to 270,000. Unemployment claims data can be volatile from week to week, particularly around holidays due to seasonal adjustments. The four-week moving average, which smooths out weekly volatility, climbed by 4,500 in the reported week to 277,000. Furthermore, the number of continuing jobless claims increased by 3,000 to 2,198,000 in the week ended December 19. Nevertheless, claims remained near historically low levels, an indication of a strong job market.
Cleveland Fed President Loretta Mester predicts the US economy to grow at a slightly faster pace in 2016 than last year. Mester forecasts the world's number one economy to expand at a 2.5% to 2.75% pace in 2016. At the same time, Fed policy makers project that they will further raise the target range by a full percentage point over the course of the year, to 1.25%-1.5%.
UK Manufacturing PMI and US ISM Manufacturing PMI
The first trading day of 2016 is accompanied by the UK Manufacturing PMI and US ISM Manufacturing PMI. The UK Manufacturing Purchasing Managers Index (PMI) is released by both the Chartered Institute of Purchasing & Supply and the Markit Economics, it captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the Manufacturing PMI is an important indicator of business conditions and the overall economic condition in UK. A slight improvement in the PMI is expected, while the UK Net Lending to Individuals could also bolster the positive effect and strengthen the British currency even more.
Later today the Institute of Supply Management is to releases the US Manufacturing PMI. The Manufacturing PMI is the level of diffusion index, based on purchasing managers surveyed in the given industry. It is a leading indicator of economic health, but the data is still expected to be below 50.0 points, therefore, indicating a contraction in the manufacturing sector. Nevertheless, a number of secondary US data is also due today, and despite most of the data releases expected to worsen, figures might still surprise to the upside and help the Greenback recover from intraday losses.
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 puts 1.47 to the test
On the last day on 2015 the Cable suffered a rather serious 80-pip decline, with the immediate support failing to hold those losses. Today the pair is under the risk of falling under the psychological level of 1.47, but with the Bollinger band and the weekly S1 providing support around 1.4670. At the same time, the nearest resistance is represented by the weekly PP at 1.4802, whereas the technical studies are unable to confirm either scenario with their mixed signals. A breach of the immediate support is also likely to set GBP/USD on a slippery slope towards the 2015 low of 1.4565.
Daily chart
With the extension of the bearish trend last week, a new possible trend-line emerged. The GBP/USD did not fully confirm the line earlier today, but for the time being it somewhat contributed to the Cable's rebound. The 200-hour SMA is still likely to prevent the pair from climbing above 1.4850, causing another sell-off towards the newly-formed down-trend.
Hourly chart
Bulls remain strong
For the fourth time in a row bullish market sentiment remains at 65%, while sell orders are outnumbering the buy ones by 2% points.
SAXO Group and OANDA have different perspectives towards the GBP/USD. Among SAXO Group traders the majority shifted back to the bearish side, expecting the Pound to weaken against the US Dollar, as 53% of their positions are short (previously 54%). Meanwhile, 66% of OANDA traders have a positive outlook towards the Cable, compared to 63% last Thursday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.54 in three months
The majority of votes is still on the bearish side, as most of the survey participants (71%) believe the GBP/USD is going to cost 1.54 or less US dollars in three months. According to the survey, the most popular choice was the one implying that the Sterling will cost 1.44 dollars or less in three months, believed by 31% of the voters. Meanwhile, the second most popular choice is the 1.46-1.48 interval, voted for by 14% of the surveyed. At the same time, the mean forecast for Apr 04 is 1.4965.