- The share of buy orders returned to previous Monday's level of 56%
- 63% of all open positions are now long
- Immediate resistance is around 1.2930
- The closest support is at 1.2845
- Upcoming events: UK Construction PMI, UK Services PMI, US ADP Non-Farm Employment Change, US Trade Balance, US ISM Non-Manufacturing PMI, US Factory Orders, US Crude Oil Inventories
UK manufacturing activity rose to its highest l in more than two years, as the level new export orders surged on the weaker British Pound, a private survey revealed on Monday. According to Markit/CIPS, the Purchasing Managers' Index advanced to 55.4 in September, its highest level since June 2014, compared to the preceding month's 53.4 points, while market analysts anticipated a slight deceleration to 52.1 in the reported period. Back in July, the PMI dropped to 48.2 points amid Britain's decision to leave the European Union. September's growth was led by the consumer goods sector, whereas export orders jumped at the fastest pace since January 2014. While the weaker currency helped boost exports, it also led to higher imported raw material costs. Investors are likely to keep a close eye on UK's crucial services PMI data for September, scheduled for release on Wednesday. In the United Kingdom, the share of services in GDP is around 80%.
After the release, the British Pound rose slightly against other major currencies, trading at 1.2872 against the US Dollar, 0.8725 against the Euro, 130.57 against the Japanese Yen and 1.2503 against the Swiss Franc.
UK Construction PMI is the only event on Tuesday
Tuesday is rather poor in terms of fundamental data, with only one relevant event being due, namely the UK Construction PMI. It 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. A result that values above 50 signals appreciates (or is bullish for) the GBP, whereas a result that values below 50 is seen as negative (or bearish). However, on Wednesday one of the most important events will be the US ADP Non-Farm Employment Change. It is a measure of 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.
GBP/USD remains subject to weakness
The British currency slumped against the US Dollar on Monday rather unexpectedly, as a March deadline was set for implementing ‘Brexit' yesterday. As a result, the pair slid all the way down to the second support at 1.2845, namely the weekly S2, breaching the falling wedge pattern to the downside. Technical studies today keep giving bearish signals, implying that more weakness could follow. However, in this case the support area around the 1.28 mark is expected to hold, as it is formed by a number of levels, such as the July low, the weekly S3, the monthly S1 and the Bollinger band.
Daily chart
The decline on Monday caused the pair to preserve the descending channel pattern, with the nearest level to limit the losses now being the July low of 1.2798. The Cable could rebound from this area, eventually putting the channel's upper border to another test, while a breach is to cause a drop to 1.2602, namely where the shorter period channel's support line coincides with the longer period one.
Hourly chart
Traders remain undecided
Bullish market sentiment slightly improved over the day, as 63% of all open positions are now long, compared to 61% previously. Meanwhile, the share of buy orders returned to previous Monday's level of 56%.
A different situation is observed elsewhere. For example, 74% of positions open at OANDA are currently long. This is more than the share of shorts (26%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 71% of traders being long and 29% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect no major changes
By the end of the next three months traders expect the Cable to be more or less at the same level where it is now. While the current price is around 1.30, the average forecast for January 04 is 1.3066. Interestingly enough, however, the 1.30-1.32 interval is not the most popular one, having only 11% of the votes. Most of the votes are concentrated in 1.28-1.30 (21%) intervals. Furthermore, 54% all survey participants believe the Cable is to fall below 1.30.