- The number of sell orders inched up from 58 to 59%.
- 59% of traders are long the Pound
- Immediate resistance is around 1.2650
- The closest support is circa 1.2568
- Upcoming events: UK Construction PMI, US Average Weekly Earnings, US Non-Farm Employment Change, US Unemployment Rate
Confidence in the UK's manufacturing sector posted a surprise fall in November, as the weak pound exerted pressure on manufacturers buying materials from abroad.The manufacturing purchasing managers' index fell to 53.4, down 0.8 points since last month, although rates of expansion are still "solid", according to survey compiler IHS Markit. This was the second month of decline in confidence in UK manufacturing, although PMI remained well above the neutral 50 point, indicating that sentiment is still broadly positive.
UK manufacturing PMI dipped below 50 in July as panic over the implications of the vote to leave the European Union took hold, but confidence quickly recovered to pre-referendum levels. However, the one definite effect of the Brexit vote has been the fall in the value of the pound. The recent fall in the Pound has boosted exports, while import prices are seen creeping higher and may in time offset the positive effect of a weaker currency, especially given that export order book growth has already waned markedly from September's five-and-a-half year high.
UK Construction PMI and US NFP figures
From the UK side attention should be paid to the Construction PMI, as 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. However, the most impact is likely to be from the US Nonfarm Payrolls. They preset 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 for the USD, while a low reading is seen as negative, although previous months reviews and the unemployment rate are as relevant as the headline figure, and therefore market's reaction depends on how the market assets them all. Another important even is the US Unemployment Rate. 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 an increase is seen as negative, although by itself, the number can't determine the markets move, as it depends on the headline reading, the Nonfarm Payrolls.
GBP/USD risks erasing most of weekly gains
The Sterling experienced a strong boost from news that UK might retain access to the European market despite ‘Brexit', allowing the 1.27 level to be reached on Thursday. However, strong US fundamentals also strengthened the American Dollar, causing the Cable to retrace more than 100 pips, with trade closing just under the 1.26 mark. Today technical studies insist the GBP/USD pair is to edge higher again, but substantial US NFP figures are still expected to trigger a decline, putting the support cluster around 1.2475 to the test. At the same time, mixed figures could help the British currency erase intraday losses, as it happened on Wednesday.
Daily chart
Thursday ended with the nearest resistance line getting broken to the upside, thus, attention shifts to the broadening rising wedge's upper border, which is located significantly higher. However, with a decline anticipated today, support could be found at 1.2475, namely the 200-hour SMA, or the two-month up-trend slightly lower.
Hourly chart
Traders mostly bullish
Today 59% of traders are long the Pound, compared to 60% on Thursday. The number of sell orders inched up from 58 to 59%.
A similar situation is observed elsewhere. For example, 62% of positions open at OANDA are currently long. This is more than the share of shorts (38%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 59% of traders being long and 36% 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 March 02 is 1.2409. Furthermore, the 1.16-1.18 interval is now the most popular ones, having 14% of the votes. On the second place in terms of the votes are the 1.24-1.26 (11%) and the 1.30-1.32 (11%) intervals, followed also by the 1.18-1.20, 1.20-1.22, 1.22-1.24 and 1.26-1.28 intervals, all with only 9% of the votes. Moreover, 51% all survey participants believe the Cable is to fall above 1.24.