- The share of purchase orders surged from 48 to 53%
- 61% of traders are now long the Pound
- The weekly PP forms resistance at 1.4563
- Support is around 1.4440, represented by the weekly S1, the monthly PP and the 20-day SMA
- 63% of traders reckon GBP/USD will be at 1.44 or higher in three months
- Upcoming events: US Average Hourly Earnings, US Non-Farm Payrolls, US Unemployment Rate, US Consumer Credit
A poor reading of the UK Services PMI yesterday caused the British currency to sustain losses against most major peers. The Sterling, however, was outperformed only by the US Dollar and the commodity-based currencies. The largest declines of 0.20% were detected against both the Aussie and the Loonie, followed by a 0.13% loss against the Kiwi and 0.08% against the US Dollar. At the same time, the Pound managed to add 0.98% against the Swiss Franc and 0.63% versus the European single currency. Meanwhile, the smallest rally of 0.16% was registered against the Japanese Yen.
Britain's services sector faced its worst month of growth in more than three years in April, indicating a further slowdown in total GDP growth in the short term ahead of the EU referendum. The Markit/CIPS PMI measure of business activity in Britain's services sector, which accounts for 79% of the UK's GDP, dropped further to 52.3 last month, reaching the lowest level since February 2013, down from 53.7 recorded in March, and below the estimate of 53.5.
The UK economy expanded by 0.4% in the first three months of the year, compared with the 0.6% growth in the final quarter of 2015. Recent surveys for the manufacturing and construction sectors for April suggested growth has since continued to slow, as businesses and consumers hold back amid concerns over the outcome of the referendum on June 23. The UK manufacturing sector encountered a surprise contraction in April that reflected in the PMI, as it entered negative territory for the first time in 4 years, plummeting under the 50 point mark to show 49.2 points. At the same time the UK's construction output rose at the slowest pace in nearly three years in April, with the PMI gauge of business activity within Britain's construction sector falling to 52 last month from 54.2 in March.
US NFP and Unemployment Rate
The most important data today is the US employment data. First of all, the Non-Farm Payrolls, released by the US Department of Labor, which presented 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 figures, and, therefore, market's reaction depends on how the market assets them all. The Unemployment Rate is also released by the Department of Labor. It 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 for the USD, while n increase is seen as negative, although by itself, the number can't determine the markets move, as it depends on the headline reading, namely the NFP.
GBP/USD risks stabilising under 1.45
The Sterling weakened against the US Dollar for the third consecutive time yesterday, but with the pair losing only 13 pips. During the previous slumps the Cable was edging lower less and less, suggesting that a possible trend reversal is at hand. Technical indicators are now giving distinctly bullish signals in the short-term, bolstering the possibility of the positive outcome. Consequently, the Sterling could even climb over the immediate resistance, namely the weekly PP, which is located at 1.4563. Despite the bullish outlook, a positive surprise in the US NFP data today could also cause the pair to plunge under the 1.44 psychological level.
Daily chart
Not much has changed over the last 24 hours in terms of GBP/USD performance and outlook. The pair remains anchored to the 1.45 major level, with the 200-hour SMA being the closest area to limit the possible gains. The NPF data is the main driver to cause either a bullish or a bearish development.
Hourly chart
Bulls now in the majority
Bulls keep growing stronger, as 61% of traders are now long the Pound. At the same time, the share of purchase orders surged from 48 to 53%.
At OANDA market sentiment remains bearish, as 53%% of their open positions are short, compared to 52% yesterday. Meanwhile, the sentiment at SAXO Bank also remains bearish, with 54% of their traders holding short positions (previously 53%).
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD above 1.44 in three months
The majority of traders (63%) believe the British currency is to cost 1.44 or more dollars after a three-month period. The most popular price interval was selected by slightly more than a quarter (31%) of the voters, namely the 1.44-1.46 one, while the second most popular choice implies that the Sterling 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 May 06 is 1.4442.
Dukascopy Community members, however, have mostly bearish perspective while the consensus forecast stands for 1.44-mark, still above last week's average price of 1.42. Furthermore, equal number of respondents are having bullish and bearish views on the pair.
Among the bullish traders, edlim suggests that "currently, price found resistance at 1.4640 and could consolidate closer towards 1.4500. Month-to-date, price is still making higher highs and lows."
Meanwhile, megajorko believes that the Cable is to edge lower by week's end, suggesting that "Even after the strong bullish momentum cable has still uncertainties about eventual Brexit." "After the US dollar gaining force it will be very strange if the pair goes up. I do not see any other major news next week so a price between present 1.44 and 1.4 (50% )", he added.