- The portion of sell orders inched up from 61 to 64%
- 62% of traders are long the Pound
- Immediate resistance is around 1.2445
- The closest support is circa 1.2390
- Upcoming events: UK Net Lending to Individuals, UK Mortgage Approvals, US Preliminary GDP, US CB Consumer Confidence, FOMC Members Dudley and Powell Speeches
The UK economy showed solid growth in the last quarter, as higher exports and consumer spending helped to offset the post-Brexit vote uncertainty, official data revealed on Friday. According to the Office for National Statistics' second estimate, the British economy expanded 0.5% in the Q3, in line with analysts' expectations. Business investment jumped 0.9% on a quarterly basis in the three months to September, surpassing the 0.6% rise market forecast. Britain's economy has so far performed much better than expected in the wake of the country's vote to leave the EU.
However, analysts suggest that challenges lie ahead, as higher inflation caused by the steep fall in the value of the British Pound is likely to squeeze consumer spending and increase cost pressures on business. Household spending increased 0.7% in the Q3, slightly below the prior quarter's level but still strong enough to boost the economy. Net trade contributed 0.7% to economic growth in the last quarter, the largest positive reading since the beginning of 2014, driven by higher exports amid the weak Sterling. Compared with the same period one year ago, the economy grew 2.3% in the Q3, meeting projections. Services output advanced 0.8%, while manufacturing and construction output dropped 0.9% and 1.1%, respectively.
US GDP is the main driver today
Today Tuesday traders can pay attention to the UK Net Lending to Individuals. It is a monthly measure of growth rates, amounts outstanding and changes in total lending to individuals, divided into lending secured on dwellings and consumer credit. It shows a picture of whether or not consumers are willing to spend money. Later that day from the US side the GDP figure is to be released. The GDP shows the monetary value of all the goods, services and structures produced within a country in a given period of time. GDP is a gross measure of market activity, because it indicates the pace at which a country's economy is growing or decreasing. Another possible event will be the US CB Consumer Confidence, which captures the level of confidence that individuals have in economic activity. A high level of consumer confidence stimulates economic expansion, while a low level drives to economic downturn.
GBP/USD to retake 1.25
In spite of bullish signs the Cable started off with a rather sharp decline of 63 pips, having also put the two-month up-trend to the test yesterday. Technical studies keep suggesting the GBP/USD pair is to edge higher, this time with no room for a decline, as trade opened just in front of the up-trend. Moreover, this support line is also reinforced by the monthly PP and the weekly S1, making demand much stronger. The closest resistance, however, is unlikely to limit the gains if those occur, but downside risks are still present, due to the Cable located within the borders of a rising wedge pattern, which usually end with downside breakouts.
Daily chart
Since the bears prevailed and pushed the GBP/USD pair towards 1.24 yesterday, the broadening wedges support line managed to prevent the Cable from falling deeper down. The trend-line should be sufficient to trigger a rebound today, but the 1.25 mark is still unlikely to be retaken.
Hourly chart
Traders mostly bullish
Market sentiment remains bullish, now at 62%, compared to 61% on Monday. The portion of sell orders inched up again, from 61 to 64%.
A similar situation is observed elsewhere. For example, 61% of positions open at OANDA are currently long. This is more than the share of shorts (39%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 68% of traders being long and 32% 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 higher than the level where it is now. While the current price is around 1.24, the average forecast for February 29 is 1.2421. Furthermore, the 1.24-1.26 and the 1.26-1.28 intervals are now the most popular ones, having 12% of the votes each. On the second place in terms of the votes are the 1.16-1.18 (11%) and the 1.20-1.22 (11%) intervals, followed also by the 1.14-1.16, the 1.18-1.20, the 1.28-1.30 and 1.30-1.32 intervals, all with only 9% of the votes. Moreover, 53% all survey participants believe the Cable is to fall above 1.24.