- 54% of all pending orders are to purchase the Sterling
- 56% of traders hold long positions
- Immediate resistance is around 1.2530
- The closest support is at 1.2420
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Upcoming Events: UK Construction PMI, US Trade Balance, US Factory Orders
The Purchasing Manager's Index for the British manufacturing sector dropped slightly in March, contrary to experts' prognoses, who expected a modest increase. According to IHS Markit, the PMI tumbled to a four-month low of 54.2 on a seasonally adjusted basis. Nevertheless, this was still a good result for the manufacturing sector, as the PMI did not fall below the long-term average. One of the key contributors to manufacturing activity growth were exports, which became more competitive on the international market amid the sharp fall in the value of the Pound since the Brexit vote.
Even though exports rose at a slower pace, they reflected the greater number of orders, which, in turn, pointed to high oversees demand and strong business confidence. In fact, business optimism in March reached a ten-month high, as 52% of the surveyed companies said they expected to see a surge in production during the next 12 months. Such positive prospect led to an improved hiring and overall employment improvement. However, inflationary pressures became more burdensome and higher raw material prices forced companies to charge higher selling prices. Incidentally, input cost growth in March was one of the fastest observed over the 20-year history of the survey.
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UK Construction PMI vs US Trade Balance and Factory Orders
Today attention turns to the UK Construction PMI, which 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. Later today two fundamental data releases are due from the US side, namely the Trade Balance and the Factory Orders. The Trade Balance is a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the USD. If a steady demand in exchange for US exports is seen, that would turn into a positive growth in the trade balance and should be positive for the USD. As for the Factory Orders, it is a measure of the total orders of durable and non-durable goods, such as shipments, inventories and orders at the manufacturing level, which can offer insight into inflation and growth in the manufacturing sector.
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GBP/USD: rebound anticipated
The British currency's performance yesterday fell in line with expectations, being that the Pound reconfirmed the down-trend and closed trade between 1.2490 and 1.2480. Another bearish development today is expected, this time with the tough demand cluster around 1.2420 limiting the losses. However, daily technical indicators keep suggesting the Cable is to edge higher, but another retest of the bearish trend-line is anticipated not earlier than on Wednesday, when the upcoming ADP data could weaken the US Dollar in order for the Sterling to climb back above 1.25. Tuesday's trade is expected to remain in the red zone.
Daily chart
© Dukascopy Bank SA
On the hourly chart the Cable is seen piercing the ascending channel's support line, which only confirms the trend-line on the daily chart, suggesting the Sterling could weaken towards 1.23 before another spark of GBP-buying occurs. Even in case bulls manage to push the GBP/USD pair higher today, that does not imply the bearish trend is to end, not in the long run at least.Hourly chart
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Traders mostly bullish
There are 56% of traders holding long positions today (previously 53%), whereas 54% of all pending orders are to purchase the Sterling.
A slightly less optimistic situation is observed elsewhere. For example, 53% of positions open at OANDA are currently long. This is more than the share of shorts (47%), but not sufficient to call the sentiment bullish, instead it is neutral. Meanwhile, sentiment at Saxo Bank is also quite close to equilibrium, with 59% of traders now being long and the other 41% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders still indecisive
© Dukascopy Bank SABy the end of the next three months traders are uncertain whether the Cable is to fall under the 1.22 major level, as only 50% of survey participants believe so. While the current price is around 1.25, the average forecast for July 04 is 1.2279. The 1.30-1.32 range is now the most popular price interval, having 15% of the votes, while on the second place are the 1.14-1.16 and the 1.18-1.20 price ranges, with 13% of poll participants choosing each of them. Furthermore, the 1.24-1.26 and the 1.26-1.28 intervals were each selected by 10% of voters.