GBP/USD gravitates towards 1.42

Source: Dukascopy Bank SA
  • The share of purchase orders increased from 40 to 66%
  • A solid number of traders remain long the Sterling, namely 65%
  • Immediate resistance is represented by the down-trend around 1.4283
  • y The weekly PP at 1.4238 is the nearest support
  • 77% of traders reckon GBP/USD will be at 1.50 or lower in three months
  • Upcoming events: BoE Governor Carney Speech, US HPI, US Markit Services PMI, US CB Consumer Confidence, UK BBA Mortgage Approvals, US New Home Sales, US Crude Oil Inventories, FOMC Statement, Federal Funds Rate

© Dukascopy Bank SA

Since there were no clear catalysts on Monday, the Sterling experienced mixed performance over the day. The main driver yesterday was the price of oil, which renewed the risk-off sentiment, causing the Pound to drop 0.11% against the US Dollar, 0.42% versus the Swissie and 0.53% against both the Yen and the Euro. However, the Pound was able to outperform commodity-based currencies, adding 1.10% versus the Loonie, 0.57% against the Aussie and 0.37% versus the Kiwi.

UK factories started the year on a weak footing as export orders declined at a steeper pace in January compared with December, while total orders also fell, according to the Confederation of British Industry. The industry has been struggling for years as weakness in the key trading partner, the Euro zone, as well as strength of the Pound undermined exports growth. Unfortunately, the CBI reported that improvements are not on horizon. Total factory orders dropped between December and January to record a negative balance of -15%. However, the less volatile quarterly reading improved to –4%, up from –12% recorded in October. While domestic demand remains resilient, global turmoil in denting further growth prospects. According to Markit/CIPS PMI survey, manufacturing activity in the UK slowed in December, with the output and new order growth easing. The overall performance of the UK manufacturing sector in 2015 was below levels seen in 2014.

UK manufacturing dropped 0.4% in November amid a warmer-than-average weather. However, it grew on a quarterly basis by 0.5% in the three months through November, the biggest gain since October 2014, and up from 0.3% in the quarter to October.


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Carney's Speech and US CB Consumer Confidence



Today the BoE Governor's speech is likely to cause volatility in Sterling crosses, but in terms of fundamental events, the US Consumer Confidence is due. The Consumer Confidence is released by the Conference Board and captures the level of confidence that individuals have in economic activity. A high level of consumer confidence stimulates economic expansion while a low level drives to economic downturn. Furthermore, the Markit Services PMI could also impact the market prices. The Services Purchasing Managers Index (PMI) is released by Markit Economics and captures business conditions in the services sector. As the services sector dominates a large part of total GDP, the services PMI is an important indicator of the overall economic condition in US.


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 gravitates towards 1.42

After having retested the down-trend, the GBP/USD currency pair bounced back and closed trade with a 22-pip loss on Monday. The bearish trend is expected to prevail and cause the Cable to fall deeper, despite the weekly PP providing immediate support. The decline could last down to the monthly S3 at 1.4053, while technical studies also support the bearish scenario. Nevertheless, a possibility of the down-trend getting breached persists, with the monthly S2 and the weekly R1 around 1.4390 being the next target.

Daily chart

© Dukascopy Bank SA

On the hourly chart the Cable is seen trading within a falling wedge pattern. However, this pattern is rather weak, therefore, a breakout to the upside cannot be guaranteed. Furthermore, the upper border of the wedge is also reinforced by the 200-hour SMA, amplifying the supply around 1.4250.

Hourly chart

© Dukascopy Bank SA



Bulls remain strong

A solid number of traders remain long the Sterling, namely 65%. Meanwhile, there has been a significant spike in the share of purchase orders; they increased from 40 to 66%.

Meanwhile, other market participants have somewhat similar outlooks towards the GBP/USD, such as OANDA. OANDA's sentiment, however, keeps rather rapidly deteriorating, as 58% of their open positions are long (previously 64%). At the same time, the sentiment of SAXO Bank broke out of the equilibrium today, with their bulls outnumber the bears by 4% points.













Spreads (avg, pip) / Trading volume / Volatility



Majority sees GBP/USD below 1.50 in three months

© Dukascopy Bank SA

Three quarters of traders (77%) believe the British currency is to cost 1.50 or less dollars after a three-month period. The most popular price interval was selected by slightly less than a quarter (24%) of the voters, namely the 1.42-1.44 one, while the second most popular choice implies the Pound is to cost either between 1.48 and 1.50 dollars or between 1.50 and 1.52 dollars in three months, both chosen by 13% of the surveyed. At the same time, the mean forecast for April 26 is 1.4585.

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