- The share of sell orders inched down from 56 to 53%
- Traders' sentiment remains bullish at 62%
- Immediate resistance is at 1.25
- The closest support is at 1.2474
- Upcoming Events: UK CPI and Core CPI, UK PPI Input, UK RPI, US PPI and Core PPI, Fed Chair Yellen's Speech
British manufacturing production rose at a stronger than expected pace in December, despite the country's decision to leave the European Union. Official data released by the Office for National Statistics on Friday showed manufacturing output grew 2.1% in the final month of 2016, following November's upwardly revised gain of 1.4% and surpassing analysts' expectations for a mild increase of 0.3%. On an annual basis, manufacturing production advanced 4.0% in December, the largest gain since April 2014. Meanwhile, industrial output climbed 1.1% in the same month, compared with the previous month's downwardly revised increase of 2.0%/ However, the figure topped analysts' forecasts of a 0.2% decline. Year-over-year, industrial production jumped 4.3%, the strongest increase since January 2011.
Furthermore, the ONS reported that the UK construction sector also grew at a stronger than anticipated pace, rising 1.8% in December, while economists predicted an increase of 1.1%, following November's upwardly revised 0.4% increase. Separately, the ONS reported the UK's trade gap narrowed to 10.9 billion pounds in December, whereas analysts expected an increase to 11.5 billion pounds in the reported period. Meanwhile, November's deficit was revised down to 11.6 billion pounds from the originally reported 12.2 billion pounds.
UK Inflation data to focus on
Monday is an absolutely uneventful day, meaning that no fundamental events are to drive the market during that day. As a result, attention turns to Tuesday's events, such as the UK CPI, PPI Input and RPI. The CPI is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. The Core CPI, however, excludes seasonally volatile products, such as food and energy, in order to capture an accurate calculation. Second, the PPI Input, it is a monthly measurement of the rate of inflation experienced by the UK manufacturers when buying goods and services. It captures changes in the average price of a fixed basket of goods and services, purchased by the UK manufacturers. From the US side, however, attention could be paid to the PPI, as it measures the average changes in prices in primary markets of the US by producers of commodities in all states of processing. Changes in the PPI are widely followed as an indicator of commodity inflation. Meanwhile, the Core PPI excludes food and energy readings.
GBP/USD remains anchored around 1.25
The Cable's losses were limited on Friday, but with the pair continuing to gravitate towards the 1.25 major level. Risks are now skewed to the downside, as there is a potential sell signal present today, which indicates the Sterling could soon slide back under the 1.24 mark. However, the Pound is first required to pierce a number of supports, such as the weekly PP, the monthly PP, the 55 and the 100-day SMAs. Technical studies somewhat support this outlook, as they are giving bearish signals in the medium and long-term timeframes. A rally today is likely to just be the continuation of last week's consolidation trend, when the Cable kept moving towards the 1.25 handle.
Daily chart
The hourly chart supports the situation of the daily chart, indicating that the Cable has been consolidating through all of the previous week, with the exchange rate refusing to leave the 1.25 major level for long. The 200-hour SMA was mostly preventing significant bullish developments and is likely to do so again today, namely prevent the Pound from rising above 1.2550.
Hourly chart
Traders mostly bullish
Traders' sentiment remains bullish, now at 62% (previously 61%). Meanwhile, the share of sell orders inched down from 56 to 53%.
A slightly less optimistic situation is observed elsewhere. For example, 59% of positions open at OANDA are currently long. This is more than the share of shorts (41%), barely sufficient for the sentiment to be called bullish. Meanwhile, sentiment at Saxo Bank is also bullish, with 58% of traders now being long and the other 42% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect the Cable to keep falling
By the end of the next three months traders expect the Cable to rise above the 1.22 major level, as 56% of survey participants believe so. While the current price is around 1.25, the average forecast for May 13 is 1.2389. The 1.20-1.22 interval is now the most popular price interval, having 14% of the votes, while on the second place re the 1.14-1.16 and the 1.30-1.32 price ranges, with 14% of poll participants choosing each of them. Furthermore, the 1.28-1.30 interval was chosen by 11% of the voters.