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.
UK Halifax HPI, US Trade Balance and Consumer Credit
GBP/USD poised for more weakness
The bearish momentum prevailed on Monday, causing the GBP/USD pair to fall under the monthly S1, thus, opening the door for new lows. In case bears continue pushing the British Pound further down, the lower Bollinger band, which is the closest support today, is expected to be ignored. As a result, the Cable risks piercing the 1.22 threshold, with attention then turning to the second significant support, namely the monthly S2 at 1.2119. However, the 1.2150 mark should also be considered as an interim demand level, as it showed some potential previously. Meanwhile, technical indicators keep giving mixed signals, unable to provide any clear sense of direction.
Daily chart
Hourly chart
Traders mostly bullish
There are 62% of open long positions today (previously 61%), whereas 60% of 60% of all pending orders are to purchase the Sterling.
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 51% of survey participants believe so. While the current price is around 1.23, the average forecast for June 07 is 1.2365. The 1.20-1.22 interval is now the most popular price interval, having 20% of the votes, while on the second place is 1.28-1.30 price range, with 16% of poll participants choosing it. Furthermore, the 1.18-1.20 interval was chosen by 15% of the voters.