While previously we saw the Pound losing amid the positive fundamentals, yesterday the currency was mostly bullish, even though the main release disappointed. The Sterling was the second best performing currency on Thursday, losing only against the Japanese Yen - minus 0.56%. At the same time, the currency was able to appreciate 0.45% against the Aussie and 0.39% against the Euro.
UK construction sector activity in May unexpectedly fell with output growth easing to its weakest for almost three years with new orders contracting for the first time in three years. In a report, market research firm Markit and the Chartered Institute of Purchasing & Supply stated that UK construction PMI index was weaker than expected at 51.2 from 52.0 the previous month and compared with expectations of 51.9 for the month. Construction makes up 6% of Britain's economy, though it accounts for a disproportionate amount of volatility in official gross domestic product data. In addition, the new orders component fell especially sharply, dropping to 48.1 from 50.1, its first time since April 2013 below the 50-mark that separates growth from contraction and the lowest index reading since March 2013.
Uncertainty surrounding the June referendum was again cited as a key factor in restraining activity with over 30% of companies stating that there was a significant negative impact. Civil engineering the worst performing category for the second month running with the residential and commercial sectors also recording activity close to three-year lows. More positively, the employment index remained in positive territory and jobs increased at the fastest pace since January. There was a further deterioration in supplier performance, which continues to suggest capacity constraints, while input prices continued to increase.
UK services PMI reaction to be suppressed; all eyes on the US NFP
GBP/USD about to test neckline
The Cable took a pause from a strong two-day decline yesterday, stabilising just above the 55-day SMA. Nevertheless, there is still some room for the sell-off to extend to the key support area at 1.4360/30, where the currency pair is in turn expected to turn around and begin to recover. However, if the price closes below 1.4360/30, this will mean that GBP/USD broke the neckline of the double top pattern and that the exchange rate will most likely descend down to the April's lows at 1.4150.
Daily chart
Hourly chart
Bulls and bears remain in balance
Despite Sterling's proximity to a major resistance area between 1.4750 and 1.48 dollars, the market is undecided with respect to the currency's future: 54% of traders are long and 46% are short. The same is with the orders, 49% of which are buy and 51% are sell.
There are also slightly more bulls at OANDA - they take up 56% of the positions open with the Canada-based broker. Sentiment at Saxo Bank is close to being neutral as well, but here the number of bears exceeds the number of bulls by six percentage points.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.46 in three months