- The number of orders to sell the Sterling increased from 58 to 62%
- 55% of all open positions are long
- Immediate resistance is at 1.2622
- The closest support is at 1.25
- Upcoming events: UK Goods Trade Balance, UK Construction Output, US Preliminary Reuters/Michigan Consumer Sentiment
British industrial production posted the biggest monthly fall in more than four years in October after the temporary shutdown of the UK's largest oilfield. According to the Office for National Statistics, industrial output declined 1.3% in the reported month, following September's drop of 0.4% and falling behind the 0.2% rise market forecast. That was the largest decline since September 2012, when the Buzzard oilfield, the biggest in the UK North Sea, was also closed for lengthy maintenance. On a yearly basis, industrial production decreased 1.1% in October, the largest contraction since August 2013. In the meantime, the country's manufacturing output declined 0.9% on a monthly basis over the period after rising 0.6% in September, while markets anticipated a slight decrease to 0.2%.
Nevertheless, the UK economy has so far performed better than expected since the Brexit vote. According to the Bank of England's latest forecasts, the economy is set to expand 1.4% in 2017, compared to a 2.2% growth registered in 2016. Moreover, the Central bank forecasts a threefold increase in inflation next year. Currently, the UK inflation rate is 0.9%. After the release, the GBP/USD pair was seen trading below $1.2600, while the EUR/GBP pair rose above 0.8500.
Relatively quiet Friday
On Friday traders can pay attention to the UK Goods Trade Balance, as it is a balance between exports and imports of goods. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the GBP. If a steady demand in exchange for UK exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the GBP. Meanwhile, from the US side there are no significant events that could have a strong impact on the GBP/USD pair.
GBP/USD remains on the back foot
For the third consecutive day the Sterling declined against the American Dollar on Thursday, despite initial signs suggesting a rally. With the weekly PP getting pierced yesterday, the Cable now risks sliding deeper down, but with losses most likely limited around 1.25, as the weekly S1, the monthly PP, the two-month up-trend, the 20 and the 55-day SMAs form a strong demand area there. On the other hand, technical indicators keep suggesting the British Pound is to edge higher, unable to confirm the outlook. In case bulls do take over, the exchange rate is expected to remain below 1.2650.
Daily chart
With yesterday's sudden decline, the GBP/USD pair breached the 200-hour SMA. This suggests that the Cable is no longer being supported, which can result in a drop towards 1.25, where the rising wedge's support line is located. .
Hourly chart
Traders mostly bullish
Traders' sentiment remains unchanged today, with 55% of all open positions still being long. Meanwhile, the number of orders to sell the Sterling increased from 58 to 62%.
A similar situation is observed elsewhere. For example, 60% of positions open at OANDA are currently long. This is more than the share of shorts (40%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 60% of traders being long and 40% 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 09 is 1.2507. Furthermore, the 1.30-1.32 interval is now the most popular one, having 14% of the votes. On the second place in terms of the votes is the 1.16-1.18 (12%) interval, followed also by the 1.28-1.30 and 1.32-1.34 intervals, both with only 10% of the votes. Moreover, 55% all survey participants believe the Cable is to fall above 1.24.