- The share of purchase order slid from 59 to 54%
- Market sentiment remains bullish at 60%
- The nearest resistance is located at 1.4012
- Immediate support rests around 1.3740
- 62% of traders reckon GBP/USD will be at 1.46 or lower in three months
- Upcoming events: UK Construction PMI, MPC Members Broadbent and Cunliffe Speeches, US ADP Non-Farm Employment Change, US Crude Oil Inventories, US Beige Book
Despite rather pessimistic UK Manufacturing PMI data yesterday, the British currency managed to remain afloat against most major peers, with exception against commodity-based currencies. With the return of risk appetite, the Sterling managed to add 1.43% against the Japanese Yen, whereas gains against other currencies were less substantial. The Pound surged only 0.30% versus the Euro, 0.25% versus the Buck and 0.16% against the Swiss Franc. Meanwhile, an increase in oil prices strengthened the Loonie, the Kiwi and the Aussie against the Pound, adding 0.72%, 0.35% and 0.21%, respectively.
Britain's manufacturing growth decline to near a three-year low in February due to a drop in new orders, underscoring the fragility of the UK economy. Markit factory index declined to 50.8 last month, down from 52.9 in January, marking the lowest level since April 2013. UK manufacturing has been under pressure for months already, hit hard by a slowdown in demand from major overseas economies. The manufacturing sector cut jobs for a second consecutive month, though the decline was moderate. On top of that, companies reported that they reduced prices for goods for the sixth straight month, but the decline was slightly less sharp than in January.
Moreover, recent data from the Office for National Statistics showed that the manufacturing sector dragged on Britain's economic growth during the final quarter of 2015, with the economy reliant on the service sector and consumer spending. The total UK gross domestic product grew 0.5% in the December quarter, with the services sector and domestic consumption being the only two drivers supporting the economy. Markets will now await fresh PMI data on the services sector due on Thursday. Expectations ahead suggest activity slowed slightly in February.
UK Construction PMI and US ADP Non-Farm Employment Change
Concerning fundamental events, that could potentially influence the Cable, we have the UK Construction PMI scheduled for today. This PMI is released by the Chartered Institute of Purchasing & Supply and Markit Economics and 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. From the US, however, the most important economic data release is the ADP Non-Farm Employment Change. The Employment Change is released by the Automatic Data Processing, Inc. The Employment Change measures 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. According to the forecasts, both data releases should boost the Cable today, but surprises in the figures could turn the table around.
GBP/USD expected to stabilise in the red zone
On Tuesday they Sterling managed to put the immediate resistance, namely the weekly PP, to the test, but trade still closed nearly 60 pips away from that level. The bullish momentum might once again push the Cable towards the nearest resistance or even higher if the fundamental data provides sufficient impetus, which could then result in a rally towards the second cluster around 1.4155. Technical studies, on the other hand, retain their bearish signals, implying that the overall four-week bias remains bearish. Consequently, a bearish development, if such occurs, is likely to be limited by the support area around 1.3740, represented by the Bollinger band and the weekly S1.
Daily chart
On the hourly chart the GBP/USD currency pair is seen trading in a slightly descending channel since the middle of the previous week. The Cable just confirmed the channel's upper border once more, while the 200-hour SMA is somewhat strengthening the resistance line. A bearish development would provide an additional confirmation of the pattern, indicating that trade is likely to be maintained between 1.38 and 1.40 in the upcoming days.
Hourly chart
Three brokers - three sentiments
Although not as strong as yesterday, but market sentiment remains bullish at 60%, while the share of purchase order slid from 59 to 54%.
The clients of the other two brokers seem to support our sentiment now. OANDA traders are bullish on the UK currency. Right now, 560% of them are long, unchanged since Tuesday. At the same time, among Saxo Bank traders bulls remain in the majority: 54% of their open positions are long and the other 46% are short.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.46 in three months
The majority of traders (62%) 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 18% of the voters, namely the 1.36-1.38 one, while the second most popular choice implies that the Pound is to cost between 1.48-1.50 dollars in three months, chosen by 15% of the surveyed. At the same time, the mean forecast for June 2 is 1.4343.
This week's participants of Dukascopy quiz became much more bearish on pair's perspectives, as now 71.4% of all votes are short, while the average prediction is located on the weekly pivot point at 1.382.
Among the 29% of traders with a positive outlook towards the Cable, Eco believes that "the pair has already tested the bad news and the strength to rebound".
At the same time, a traders with a negative outlook, namely RacerX, suggests that uncertainty about the UK's upcoming referendum to stay or leave the EU is raising volatility with the Sterling. "Brexit fears are likely to weaken GBP/USD," he commented.