- The share of purchase orders edged up from 59 to 70%
- Bulls take up 71% of the market
- The main short-term resistance lies around 1.4247
- Support is around 1.41, namely the weekly S2 and the Bollinger band
- 57% of traders reckon GBP/USD will be at 1.46 or lower in three months
- Upcoming events: UK Inflation Report Hearings, US CB Consumer Confidence, US Existing Home Sales, MPC Member Haldane Speech
With fears of a Brexit growing stronger, the British currency declined against most major peers on Monday. The largest declines of 2.76%, 2.70% and 2.19% were registered against commodity currencies, namely the Aussie, the Kiwi and the Loonie, respectively. A rebound in oil prices also helped the commodity-based currencies post such large gains against the Sterling. Other notable losses were seen against the Buck (1.78%) and the Yen (1.47%), while the Pound held most resilient versus the Euro and versus the Swissie, having lost 0.87% and 0.80%, respectively.
The recent weakening in the Sterling helped the British manufacturing sector to stabilise somewhat in February. According to the Confederation of British Industries, the overall balance of total orders declined to –17%, meaning more companies reported their activity below normal than above. Businesses, however, had expected output to grow in the coming quarter, with 30% predicting expansion, and 19% a decline, resulting in a balance of +11%. The UK manufacturing sector has been struggling due to a strong Sterling, slow growth in the Euro zone, the key trading partner, and external headwinds. Moreover, increased international competition, slow take up of technology, unsupportive ecosystems and out-dated business models also pose a threat to the UK's manufacturing industry.
According to the official data, factories' output dropped 0.2% between November and December, marking the third consecutive decline since September 2015. The total industrial production was revised down in the fourth quarter to a 0.5% fall. The first official estimate of the fourth-quarter GDP growth showed the British economy expanded 0.5%, while the annual rate of quarterly growth decelerated to 1.9%. Revision of both industrial and construction sectors had negative impact of as much as 0.06 percentage points of Q4 GDP.
US Inflation Hearings and US Consumer Confidence
Today at 10:00 AM GMT the UK Inflation Report Hearings are due. During these hearings the BoE Governor and several MPC members testify on inflation and the UK's economic outlook before Parliament's Treasury Committee. The hearings tend to cause volatility in Sterling crosses. Later today the US CB 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. The figure is forecasted to worsen and, thus, to weigh on the US currency. Nonetheless, the most impact on the Cable is likely to be by the UK Inflation Report Hearings.
GBP/USD on the edge of falling under 1.41
The Sterling dropped more than 200 pips against the US Dollar on Monday, as the odds of a Brexit increased. The GBP/USD currency pair remains weak and could drop below the 1.41 major level, unless demand around that area, represented by the Bollinger band and the weekly S2, is sufficient to stop the fall. If this support fails, we might then see a slump towards the second target at 1.3945, namely the weekly S3 and the monthly S1. In case bulls manage to take over, the weekly S1 is the main short-term resistance, but the Cable might struggle to maintain trade above 1.42.
Daily chart
The Cable continued sliding down on Monday, falling all the way down to the Jan low of 1.4079. The exchange rate keeps gravitating towards the 1.41 level, but along with the January low and the support levels on the daily chart, the pair could still regain the bullish momentum and eventually make its way towards the resistance line above 1.43.
Hourly chart
Three brokers - three sentiments
A rather high percentage of bulls (71%) is dominating the market, whereas the share of purchase orders edged up from 59 to 70%.
The clients of the other two brokers seem to have different opinions on GBP/USD. OANDA traders are bullish on the UK currency. Right now, 59% of them are long, compared to 64% on Monday. At the same time, Saxo Bank traders' sentiment reached a perfect equilibrium: 50% of open positions are short and the other 50% are long.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.46 in three months
The majority of traders (57%) believe the British currency is to cost 1.46 or less dollars after a three-month period. The most popular price interval was selected by 15% of the voters, namely the 1.36-1.38 one, while the second most popular choice implies that the Pound is to cost either between 1.40 and 1.42 dollars or between 1.48 and 1.50 dollars in three months, both chosen by 12% of the surveyed. At the same time, the mean forecast for May 23 is 1.4415.