Activity in the British services sector, which accounts for almost 80% of the economy, dropped more than expected last month amid inflationary pressures linked to the weak Pound, a private survey revealed on Friday. Markit/CIPS reported its Purchasing Managers' Index fell to 53.3 in February from 54.5 points seen in the preceding month, while market analysts anticipated a slight decrease to 54.2. Markit said that the latest PMI surveys were consistent with economic growth slowing to 0.5% in the Q1 of 2017 from the previous quarter's 0.6%, in line with the Bank of England's forecasts. Data suggested that the widely-expected Brexit economic slowdown finally started to hit the UK economy. Moreover, some analysts said that retail sales data, scheduled for the release on March 23rd, would probably paint even worse picture of the post-Brexit recession as the weak Sterling pushed prices sharply higher. Since the June 23 referendum, the Pound lost nearly 18% of its value. Back in February, input prices and prices charged by service providers advanced at the fastest pace in more than eight years.
After the release, the Pound dropped 0.4% against the US Dollar to trade at 1.2215, its seven-week low. Against the Euro, the Sterling fell 0.6% to trade at 86.16.
US Factory Orders is the only event
GBP/USD stuck between 1.2250 and 1.23
Some uncertainty in Yellen's speech of Friday caused the British currency to erase all intraday losses and end the day with a 33-pip rally against the US Dollar. Now the Cable faces an important psychological support, namely the 1.2250 level, as a breach would likely lead to a drop to the 1.20 major level. Even though technical indicators are giving mixed signals in the daily timeframe, the possibility of a recovery is also doubtful, as the 1.23 mark acts as a tough resistance, which the GBP/USD could struggle to overcome today. Ultimately, the Sterling is expected to retest the bearish trend-line again, before a plunge towards 1.20 could become achievable once again.
Daily chart
Hourly chart
Traders mostly bullish
Today 61% of all open positions are long (previously 58%). At the same time, the number of purchase orders edged up from 48 to 59%.
A slightly more optimistic situation is observed elsewhere. For example, 64% of positions open at OANDA are currently long. This is more than the share of shorts (36%), barely sufficient for the sentiment to be called bullish. Meanwhile, sentiment at Saxo Bank is also bullish, with 69% of traders now being long and the other 31% 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 fall under the 1.22 major level, as 52% of survey participants believe so. While the current price is around 1.23, the average forecast for June 06 is 1.2371. The 1.20-1.22 interval is now the most popular price interval, having 21% of the votes, while on the second place are 1.18-1.20 and the 1.28-1.30 price ranges, both with 16% of poll participants choosing them. Furthermore, the 1.30-1.32 interval was chosen by 13% of the voters.