- 572 of all pending orders are to sell the Pound
- 53% of all open positions are long
- Strong resistance is around 1.30
- Significant support rests circa 1.29
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Upcoming Events: UK Parliamentary Elections, US Initial Jobless Claims, UK Manufacturing Production, UK Goods Trade Balance, UK Construction Output, UK Industrial Production, UK NIESR GDP Estimate
British services activity fell more than expected last month amid the upcoming 2017 General Election, official figures revealed on Monday. Markit reported that its Purchasing Managers' Index for the UK services sector dropped to 53.8 points in May, following the preceding month's 55.8 and falling behind expectations for 55.1. The weaker-than-expected figure smashed analysts' hopes for the Q2 rebound, as services activity accounts for about 70% of the British economy. Moreover, Monday's PMI data offset the better-than-expected PMI for both construction and manufacturing sector released last week.
Nevertheless, Markit reported that prices charged by services providers increased at the slowest pace since November, suggesting that inflation pressures began to wane. New orders grew at the slowest pace since February last month. Some companies blamed election jitters for their sluggish performance. Apart from that, the Society of Motor Manufacturers and Traders reported on Monday that demand for cars dropped 8.5% in May amid the upcoming June 8 Election.
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UK Parliamentary Elections to drive the markets on Thursday
On Thursday the UK Parliamentary Elections are likely to be the main driver for the Cable, being that there are no first-class US fundamental events due, only the initial Jobless Claims. The Jobless Claims are a measure of the number of people filing first-time claims for state unemployment insurance. In other words, it provides a measure of strength in the labor market. A larger than expected number indicates weakness in this market, which influences the strength and direction of the US economy. Friday, however, is rich in terms of UK data, such as the Manufacturing and Industrial Productions. The Manufacturing Production measure the manufacturing output and is significant as a short-term indicator of the strength of UK manufacturing activity, which dominates a large part of total GDP. As for the Industrial Production, it 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 data release will be the Goods Trade Balance. It is a balance between exports and imports of goods. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the GBP. If a steady demand in exchange for UK exports is seen, that would turn into a positive growth in the Trade Balance and should be positive for the GBP. Finally, the NIESR GDP Estimate. It 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.
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GBP/USD awaits election results
The British Pound continued to outperform the US Dollar on Wednesday, but with gains limited by the newly-formed ascending channel's resistance line. The channel supports the possibility of the Cable edging lower today, with both trend-lines near 1.29 likely to be retested. The bearish development was long expected, but technical indicators began showing rather strong bullish signals recently, suggesting the channel could be broken to the upside. A continued recovery could suggest the pair is on the path to the larger scale pattern's resistance line just under the 1.35 mark. However, the Sterling is first required to stabilise above 1.30, as supply around this area kept it away from posting more gains since October 2016.
Hourly chart
Opposite to the hourly chart, the daily one suggests the Cable has sufficient room for growth today, assuming the 1.30 mark is pierced. Gains could extend beyond 1.31, resulting in a retest of rising wedge's resistance line within the next several days.Daily chart
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Traders remain neutral
Market sentiment is still neutral, as 53% of all open positions are long. At the same time, there are now 52% of all pending orders set to sell the British Pound.
A less optimistic situation is observed elsewhere. The sentiment at OANDA remains bearish, namely 60% of all open positions are short and the remaining 40% are long. Meanwhile, sentiment at Saxo Bank is also bearish, with 65% of traders now being short and the other 35% - long on the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders see Pound recovering
© Dukascopy Bank SATraders believe the Cable is to rise above the 1.30 major level by the end of the next three months, as 52% of survey participants share this belief. While the current price is around 1.29, the average forecast for September 08 is 1.2915. The 1.34-1.36 range is now the most popular price interval, having 28% of the votes, while on the second place is the 1.20-1.22 interval, with 18% of the voters choosing it.