- The share of buy orders surged from 45 to 54%
- 55% of traders are long the Pound
- The weekly PP forms resistance around 1.4538
- Support is around 1.440, represented by the 20-day SMA and the monthly PP
- 69% of traders reckon GBP/USD will be at 1.44 or higher in three months
- Upcoming events: UK Manufacturing Production, UK Industrial Production, UK NIESR GDP Estimate, US Crude Oil Inventories, US Federal Budget Balance
The Sterling had another good day yesterday, having appreciated against most major peers over the day. Once again the highest rally was registered against the Japanese Yen, namely 1.12%, followed by a 0.75% surge against the Swiss Franc. At the same time, the Pound edged 0.39% higher against the Kiwi, 0.32% versus the Euro and 0.24% against the US Dollar. However, losses also occurred, with the GBP/AUD suffering a 0.40%, while the GBP/CAD edged only 0.16% lower.
The UK's trade deficit widened in the first quarter to its biggest value since the onset of the financial crisis, reinforcing the view that global weakness is weighing on the economy. Britain's economic growth has already slowed to 0.4% in the first quarter. The deficit widened to 13.3 billion pounds, the most since the start of 2008, from 12.2 billion pounds in the fourth quarter of 2015, according to the Office for National Statistics. The UK trade shortfall widened over the quarter due to a 1.9 billion pounds increase in imports such as mechanical machinery, cars, clothing, jewellery and footwear. Meanwhile, exports rise by just 500 million pounds, driven by chemical products.
Data from the ONS showed that Europe is gradually becoming a less important destination for British companies. In 2000, 60% of exports were destined for other EU countries, but the percentage dropped to 58% in 2005, 54% in 2010 and 47% in 2015. Over the same period, imports from the EU remained constant, making up for 54% in both 2000 and 2015. Still, the EU remains the biggest market for British exporters, which sell three times more to its member states than they do to the US. A British Chambers of Commerce survey found that six in 10 exporters favour staying in the EU.
UK Manufacturing Production, NIESR GDP Estimate and US Federal Budget Balance
Today the UK Manufacturing and Industrial Production data are due. The Manufacturing Production is released by the National Statistics and measures the manufacturing output. Manufacturing Production is significant as a short term indicator of the strength of the UK manufacturing activity that dominates a large part of total GDP. The Industrial Production, however, measures outputs of the UK factories and mines. Changes in industrial production are widely followed as a major indicator of strength in the manufacturing sector. Another important release is the NIESR GDP Estimate, which is an estimate of growth over the last 3 months up to the report, which comes out a month before the official announcement. The report is highly reliable and would influence the UK monetary policy. Later today the US Federal Budget Balance is also due. It summarizes the financial activities of federal entities, disbursing officers, and Federal Reserve banks. A positive budget statement that receipts exceed budgetary outlays is seen as bullish for the USD. On the other hand, a negative figure (deficit) that indicates government debt is seen as bearish.
GBP/USD in limbo ahead of UK manufacturing data
The British Pound rebounded from the 1.44 mark on Tuesday, having climbed over the immediate resistance cluster. The same cluster is now acting as the immediate support, which should provide sufficient demand for another rally today. Technical indicators are mostly giving signals to buy the Sterling, bolstering the probability of the bullish outcome. In this case the Cable is likely to retake the 1.45 psychological level and might even put the nearest resistance at 1.4538, namely the weekly PP, to the test. However, a lot depends on the UK Manufacturing Production data, which could prolong the pair's previous week's bearish trend.
Daily chart
The GBP/USD pair appreciated on Tuesday, thus, reached the descending channel's upper border. Technically, price should not begin falling, preserving the pattern, with the target being the 1.4330 level, namely the channel's lower boundary.
Hourly chart
Bulls now in the majority
Market sentiment is somewhat bullish, with 55% of traders being long the Pound. The share of buy orders, however, surged from 45 to 54%.
At OANDA the bullish market sentiment keeps growing, as 56% of their open positions are long, and the remaining 44% are short. Meanwhile, the sentiment at SAXO Bank is close to the equilibrium, as 52% of their open positions are currently short, unchanged since Monday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD above 1.44 in three months
The majority of traders (69%) believe the British currency is to cost 1.44 or more dollars after a three-month period. The most popular price interval was selected by more than a quarter (35%) of the voters, namely the 1.44-1.46 one, while the second most popular choice implies that the Sterling is to cost either between 1.42 and 1.44 dollars, or between 1.46 and 1.48 dollars in three months, both chosen by 13% of the surveyed. At the same time, the mean forecast for Aug 11 is 1.4552.
The absolute majority of Dukascopy traders (88.9%), who took part in the Community Forecasts survey last week are bearish on the Pound and see the pair aiming to reach the 1.44 level.
Among the small part of bullish traders Jay said that his bullish prediction is based on technical indicators, backing his stance.
At the same time, Jignesh is with the majority on the USD/JPY, expecting it to edge lower by week's end. "Similar to the EUR/USD, we have a bearish candle. Specifically, a bearish engulfing weekly candle. Signaling to a continuation in the pull back that started last week. Though the GBP is showing some strength in other pairs, this pull back can be shallow in comparison to the rest of the majors," he mentioned.