- The number of purchase orders dropped from 52 to 43%
- 59% of all open positions are long
- Main resistance is the weekly R1 at 1.4393
- The nearest supports are the weekly PP and the monthly PPs, the 20 and the 55-day SMAs around 1.4250
- 57% of traders reckon GBP/USD will be at 1.44 or lower in three months
- Upcoming events: UK Manufacturing PMI, US Average Hourly Earnings, US Non-Farm Employment Change, US Unemployment Rate, US ISM Manufacturing PMI, US Revised UoM Consumer Sentiment, FOMC Member Mester Speech
Weak UK Current Account and Net Lending to Individuals data caused the British Pound to suffer losses against some major peers, but Final GDP figures triggered a rally in the Sterling against commodity currencies. The UK currency dropped 0.50% against the Euro and 0.45% versus the Swiss Franc, while suffering the least against the US Dollar – having edged only 0.13% lower. Concerning commodity-based currencies, the Pound appreciated 0.17%, 0.06% and 0.05% against the Loonie, the Aussie and the Kiwi, respectively. At the same time, the Sterling remained completely unchanged against the Japanese Yen.
The UK economy ended 2015 on a firmer footing than previously thought, but the current account deficit widened to a record high level in the final quarter of the year. Britain's gross domestic product increased 0.6% in the three months through December, compared with the 0.5% gain reported last month, according to the Office for National Statistics. The revision came due to better performance of the services sector, which rose at a faster pace of 0.8%, industrial output and construction. On the expenditure side, the strongest upward driver again came from consumers, with household expenditure increasing 0.6% to 267.4 billion pounds during the reported period, helping to offset a 2% decline in business investment and weak exports. The UK economy grew 0.4% in the third quarter. The annual growth in the fourth quarter was also revised, by two percentage points up to 2.1%.
While the British economy grew stronger at the end of last year, the current account deficit widened to 32.7 billion pounds during the fourth quarter, the largest ever deficit recorded by the ONS, and compared with a revised deficit of 20.1 billion pounds recorded in the previous quarter. The deficit accounts for 7% of total GDP, which the ONS said was also the largest proportion since records began in 1955.
UK Manufacturing PMI, US NFP and Unemployment Rate
Today only one economic data release concerning the UK is due, namely the Manufacturing PMI. The Manufacturing Purchasing Managers Index (PMI), released by both the Chartered Institute of Purchasing & Supply and the Markit Economics, 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. Later today important US data is due. First of all the the nonfarm payrolls, released by the US Department of Labor, which presents the number of new jobs created during the previous month, in all non-agricultural business. The monthly changes in payrolls can be extremely volatile, due to its high relation with economic policy decisions made by the Central Bank. The number is also subject to strong reviews in the upcoming months, and those reviews also tend to trigger volatility in the forex board. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish), although previous months reviews and the unemployment rate are as relevant as the headline figure, and therefore market's reaction depends on how the market assets them all. Second, the US Unemployment Rate, released by the US Department of Labor, which is a percentage that surges from dividing the number of unemployed workers by the total civilian labor force. It represents the percentage of people actively seeking employment and willing to work. Usually, as a higher rate is seen in recessionary economies, while on the contrary, a growing economy sees its unemployment rate decreasing. Therefore, a decrease of the figure is seen as positive (or bullish) for the USD, while an increase is seen as negative (or bearish), although by itself, the number can't determinate the markets move as it depends on the headline reading, the Nonfarm Payroll.
GBP/USD muted ahead of NFP data
The Cable struggled to pierce the weekly R1 for the second day yesterday and is likely to have issues edging above 1.44 again today. The base case scenario is a corrective decline towards the immediate support cluster, represented by the 20 and the 55-day SMAs, the weekly and the monthly PPs, all around 1.4260. However, technical studies retain mixed signals, creating a possibility of the bullish development to occur, with fundamental data acting as a catalyst. The ceiling would then be the 1.45 psychological level, also being bolstered by the Bollinger band.
Daily chart
The Cable appears to be trading within the borders of a descending channel since Wednesday. If the channel is preserved, the exchange rate should drop towards the pattern's lower boundary at 1.4260, which is also bolstered by the 200-hour SMA today.
Hourly chart
Sentiment turns bearish
Market sentiment improved over the day, as 59% of all open positions are long (previously 53%). At the same time, the number of purchase orders dropped lower, namely from 52 to 43%.
Concerning the sentiment of other market participants, OANDA still has a bullish sentiment of 51%, compared to 61% on Thursday, opposed to our now bearish sentiment. Meanwhile, the sentiment at Saxo Bank broke out of the perfect equilibrium today, with bears outnumbering the bulls by 2% points.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.44 in three months
The majority of traders (57%) believe the British currency is to cost 1.44 or less dollars after a three-month period. The most popular price interval was selected by 19% of the voters, namely the 1.38-1.40 one, while the second most popular choice implies that the Pound is to cost between 1.46 and 1.48 dollars in three months, chosen by 13% of the surveyed. At the same time, the mean forecast for July 01 is 1.4267.
Community members do not expect any surprises from the currency pair this week, as according to the Dukascopy survey the Sterling might end the week at 1.41, slightly changed from the last week's closing price. The majority of those polled (53%) share a bearish outlook for the UK currency.
Among the traders with a positive outlook towards the GBP/USD currency pair, Jignesh commented that the Cable here can be tricky. "The pair is bouncing off major monthly and yearly support levels from 1.38 and looks bullish from there, but at the same time recently made a strong breakdown of a 4h up channel indicating bearish pressure," he backed his view. Jignesh also added that "Brexit fundamentals continue to put pressure on the pair. Expecting a volatile week ahead, with a slight bullish bias as a result of a weak USD."
At the same time, Besim, a trader with a bearish perspective towards the Cable, mentioned that "the GBP/USD continued to decline as the greenback gained. The Fed inspired rally as well as terrorism in Europe weakened the pound as it increased the possibility of Brexit over immigration issues. The pound is trading at 1.4114" in support of his outlook.