- Share of sell orders decreased from 64 to 58%
- 38% of traders are long and 62% are short
- 1.3500/1.3480 should act as a ceiling
- price is thus likely to retreat to 1.33
- 52% of traders reckon GBP/USD will be at 1.30 or lower in three months
- Upcoming events: UK Halifax HPI, Manufacturing Production, Inflation Report Hearings, FOMC Member George Speech
According to the latest data released by Markit Economics, Britain's services sector rebounded notably in August, showing a strong recovery from the post-Brexit plunge recorded during the previous month. Markit's Purchasing Managers Index for the services sector added 5.5 points or rising from a four-year low of 47.4 in July to 52.9 in August, easily beating expectations for a 50 reading. Moreover, the increase of 5.5 points on a monthly period was the largest jump recorded over the 20-year history of the survey and followed a record drop of 4.9 points in July. It is worth to point out that PMI report followed news on Thursday of a bigger-than-expected rebound, to a 10-month high, of the Markit manufacturing-sector PMI for the UK and like the Thursday report, it boosted the pound. The Sterling soared to a seven-week high against the dollar after data showed the UK services sector rebounded sharply in August, following a slump during the previous months. The UK currency increased 0.35% against the dollar to 1.3340 mark.
Nevertheless, overall economic growth is expected to slow sharply, keeping alive the possibility of another Bank of England rate cut before the end of the year.
UK data to dominate Wednesday trading
Today GBP/USD should be mainly driven by the releases from the United Kingdom, although recently we have noticed decreased sensitivity of the currency pair to UK data (no change amid surprisingly good Services PMI) and increased sensitivity of the pair to US data (1% gain amid poor ISM Non-Manufacturing PMI). The first important release is to come out at 08:30 am GMT on Manufacturing Production, which is expected to contract a little more than a month ago - minus 0.4% in August after minus 0.3% in July. In three hours attention is to shift to Inflation Report Hearings, where Mark Carney is to give his comments on inflation and on economic outlook in general.
GBP/USD closes above August high
Despite our expectations GBP/USD spiked through the nearby resistances, including the August high, and approached the highest level since July (1.3480). Disappointing US data gave the pair strong impetus yesterday, but trading still seems to be bound by the bullish channel. This means 1.3500/1.3480 should act as a ceiling, while near-term outlook is bearish, as we wait for a downward correction within the pattern. The price is thus likely to retreat to 1.33, before it stabilises and then resumes recovery from 1.29 that was started in mid-August.
Daily chart
Hourly chart confirms that the upside is limited by a cluster of resistances, including the trendline that was established only last Thursday. At the same time, the closest notable support is at 1.3380/70, consisting of the August high and a one-week support uptrend.
Hourly chart
Traders prefer to be short the Pound
Distribution between the bulls and bears remains the same—38% of traders are long and 62% are short the Sterling. However, the share of sell orders has noticeably decreased since the last report, namely from 64 to 58%.
Saxo Bank traders are also sceptical with respect to the Pound's ability to outperform the Greenback. According to the latest figures, 41% of the Denmark-based traders are long the Cable and 59% are short the pair. Sentiment at OANDA is more balanced. There the difference between the longs and shorts is six percentage points in favour of the bears, but the gap is insignificant.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees the GBP/USD below 1.30 in three months
Slightly more than half of traders (52%) believe the British currency is to cost 1.30 or less dollars after a three-month period. The most popular price intervals, however, were the 1.26-1.28, 1.34-1.36 and the 1.36-1.38 ones, all three selected by 13% of the voters. The second most popular choice implies that the Sterling is to cost either between 1.28 and 1.30 dollars or between 1.38 and 1.40 dollars in three months, both chosen by 11% of the surveyed. At the same time, the mean forecast for Dec 02 is 1.3064.