- 51% of all open positions are long
- The percentage of buy orders increased from 49 to 63%
- Immediate resistance is represented by the weekly PP at 1.4802
- The weekly S1 and the Bollinger band around 1.4640 are the nearest support
- 70% of traders reckon GBP/USD will be at 1.54 or lower in three months
- Upcoming events: UK Construction PMI, UK Services PMI, US ADP Non-Farm Employment Change, US Trade Balance, US ISM Non-Manufacturing PMI, US Factory Orders, FOMC Meeting Minutes
The Sterling experienced mixed performance on Monday, as fundamental data provided mixed results as well. The Pound managed to outperform commodity currencies, such as the Kiwi, the Aussie and the Loonie, adding 2.49%, 1.08% and 0.23%, respectively. At the same time, the British currency suffered a 1.44% decline versus the safe-haven Yen, also losing 0.42% against the Swissie and 0.20% versus the US Dollar. However, the Pound remained relatively unchanged against the Euro, adding only 0.02%.
Business activity in the UK manufacturing sector unexpectedly weakened in December, adding to signs the sector is unlikely to contribute much to overall economic growth. The Markit/CIPS manufacturing PMI dropped to 51.9 last month, sliding to the lowest level in three months, compared with 52.5 in November. Manufacturing failed to add to Britain's economic growth throughout the first three quarters of 2015, with the services industry being the main driver of economic expansion. The output and new order growth slowed further in the reported month. According to the Confederation of British Industries, British manufacturers saw some improvement last month, as export orders rose. However, the CBI warned that the sector predicted a mild contraction over the next three months. Manufacturers continue to struggle with the strength of Sterling and weak demand in the Euro zone, the UK's main trading partner.
A separate report showed, the number of mortgage approvals rose to 70,410 in November, up from a revised 69,867 a month earlier and the highest level since August 2015. Moreover, consumer credit continued to increase, surging by 1.5 billion pounds in November. Persistently low inflation, strong labour market and increased consumer confidence have been underpinning credit flow recently, with household spending being one of the most significant upside drivers for the UK economy.
UK Construction PMI
Tuesday is a rather quiet day in terms of fundamental data this week, as the only relevant event to influence the GBP/USD is the UK Construction PMI. The Construction PMI is released by the Chartered Institute of Purchasing & Supply and Markit Economics, it 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. According to the forecast, the PMI is likely to grow, showing more expansion in the construction industry in the UK.
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 in tight range between 1.4650 and 1.48
Cable's volatility yesterday was limited by the immediate support and resistance, while the GBP/USD ended the day relatively unchanged with a slight move to the downside. Even though the pair remains in a bearish trend, a corrective rally might occur today, without the violation of the resistance in face of the weekly PP. Technical indicators, however, keep giving mixed signals in the daily timeframe, unable to support the positive outlook, suggesting a decline towards the weekly S1 and the Bollinger band around 1.4655 is possible.
Daily chart
The Sterling continued to edge lower against the US currency on Monday, retesting the possible trend-line. The GBP/USD was able to rebound, but that bullish momentum is rather hard to sustain. Another test of the trend-line today would confirm it completely, but a risk of it getting pierced is relatively high, as the fundamentals might provide impetus for downside movement. At the same time, the 200-hour SMA is the only ceiling, located too far to be reached today.
Hourly chart
Bulls remain strong
Today 51% of all open positions are long, compared to 65% yesterday. The percentage of buy orders increased from 49 to 63%.
SAXO Group and OANDA have different perspectives towards the GBP/USD. Among SAXO Group traders the majority remains on the bearish side, expecting the Pound to weaken against the US Dollar, as 53% of their positions are still short. Meanwhile, 61% of OANDA traders have a positive outlook towards the Cable, compared to 66% on Monday.
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 (70%) 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 30% 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 05 is 1.4976.