- Share of sell orders is 20 pp higher than the share of buy orders
- Bulls and bears are equal in numbers
- Target is the trend-line at 1.3260.
- Strong resistance at 1.3350
- 59% of traders reckon GBP/USD will be at 1.30 or lower in three months
- Upcoming events: BOE Inflation Report, Official Bank Rate, Carney Speech, US Unemployment Claims, Factory Orders
Activity in Britain's services sector dropped to its lowest level since March 2009 following the country's decision to leave the European Union, fresh data from HIS/Markit revealed on Wednesday. The final Purchasing Managers' Index (PMI) for the services sector fell to 47.4 on a seasonally adjusted basis in July from 52.3 points seen in the preceding month, in line with market analysts' expectations and the preliminary reading released by Markit/CIPS two weeks ago. Furthermore, the all-sector PMI, which includes the manufacturing sector as well as the construction sector and the services sector declined to 47.3 points in the reported month, following June's 51.9 points and hitting the lowest level since April 2009. Although Chris Williamson, chief economist at Markit, commented in the report it is too early to say if the indicators will remain in the contraction territory in the upcoming months, adding that the fall of the all-sector PMI showed an increased chance of the United Kingdom sliding into recession.
Moreover, the PMI surveys added pressure on the Bank of England to cut interest rates and its economic growth forecasts for the domestic economy at its August meeting on Thursday for the first time since the financial crisis.
Expect lower BOE rate
The market expects the Bank of England to lower the official bank rate by 25 bps to 0.25% today in order to support the UK economy after it faced increased downside risks due to the results of the 'Brexit' vote. Meanwhile, the analysts assume the BOE will not alter the size of the asset purchase facility, and it is likely to stay at 375B.
GBP/USD retreats from 1.3350
GBP/USD trades lower today in anticipation of the BOE's decision on the interest rate. Nevertheless, from a technical perspective the currency pair retains a good chance to resume Tuesday's rally, as it has recently broken out of the triangle to the upside. If the price manages to stay above 1.32 and then consolidates over 1.3350, the next objective for bulls will be the July high at 1.3480. A case for a stronger Pound, however, is weak, as the technical indicators are from neutral to bearish.
Daily chart
In the hourly chart GBP/USD is slowly drifting lower after the currency pair bounced off of 1.3360, namely the upper bound of the ascending channel. Given no major surprises from the rhetoric and actions of the central bank, the target is thus the lower trend-line at 1.3260.
Hourly chart
No consensus in the market
Ambiguity of Sterling's prospects is also highlighted by traders' indecision: bulls and bears are presently equal in numbers. In the meantime, the share of sell orders is 20 pp higher than the share of buy orders.
Similar indecision is observed among OANDA traders, where 47% of traders are holding long positions and 53% are short. Sentiment among Saxo Bank traders, on the other hand, is more bearish: the share of longs at the Denmark-based broker is 43%.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.30 in three months
More than half of traders (59%) believe the British currency is to cost 1.30 or less dollars after a three-month period. The two most popular price intervals were selected by 25% of the voters each, namely the 1.24-1.26, while the second most popular choice implies that the Sterling is to cost between 1.28 and 1.30 dollars in three months, chosen by 19% of the surveyed. At the same time, the mean forecast for Nov 01 is 1.307.