- The share of buy orders edged back up to the last week's level of 57%
- 53% of all positions are now long
- 51% of forecasts for Sep 2 are now below 1.56
- Closest resistance is at 1.5343, the weekly PP
- Nearest support is located around 1.5170, represented by the Bollinger band, 55 and 100-day SMAs and the weekly S1
- Upcoming events today: UK Construction PMI, UK Net Lending to Individuals, US Factory Orders, FOMC Member Brainard Speech
The Sterling suffered losses against most major peers on Monday, but remained relatively unchanged against the Swissie (-0.01%). The largest declines were registered against the US Dollar (0.59%) and the Kiwi (0.33%), following with lesser ones versus the Yen (0.09%), the Aussie (0.07%) , the Euro (0.06%) and the Loonie (0.05%).
UK manufacturing activity rebounded in May after sliding to the lowest level in seven months in April, but strong domestic demand was largely offset by sluggish exports. According to Markit, British manufacturing PMI climbed to 52.0 in May up from 51.8 a month earlier. Economists, however, had forecast an increase to 52.5. Manufacturing accounts for about 10% of the UK economy. Hiring was the slowest in more than two years, suggesting the boom in job creation that Britain has enjoyed since mid-2013 may be starting to wane. British factory output rose just 0.1% in the first three months of 2015, and an industry body cut its growth forecast for 2015 as a whole, citing knock-on effects from weakness in the oil and gas sector. The report also underscored Britain's reliance on domestic consumption while an economic recovery has yet to regain momentum in Europe, the UK top trading partner. Data last week showed exports derailed activity in the first quarter, with net trade slashed 0.9 percentage point from the overall economic output. The UK economy grew 0.3% in the period, the weakest since 2012.
The downbeat news on manufacturing contrasts with more upbeat reports on other sectors of the economy. The Confederation of British Industry said the private sector as a whole was enjoying its fastest growth for a year.
Paul Bednarczyk, head of research at 4CAST, is optimistic with respect to the world's largest economy over the coming months, saying that "we should be seeing some better US numbers coming through," which will lead the Cable to 1.54. Meanwhile, the analyst considers that "over the next three months Sterling will perform well on a trade-weighted basis," but GBP/USD is still likely to decline to 1.4850. In the longer-term perspective, Bednarczyk is also bearish, setting his 12-month forecast at 1.42, which will rather be a story of Dollar strength rather than Sterling weakness.
UK Construction PMI
The most important even concerning the Cable is the UK Construction PMI, which represents the relative level of business conditions in the UK. The PMI lost ground in recent readings and showed worse-than expected data in March and April releases. A rebound is anticipated today, whereas the index showed figures above 50 for a year, indicating industry expansion. However, the PMI was dropping during the year and reached the lowest level in the last two years. If the data disappoints, the UK might fall under industry contraction.
Ross Walker, economist at Royal Bank of Scotland Group, shared his view on the short-term forecast for the Cable. He mentioned that GBP/USD has a moderate sell-off and that it could be down to high 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross also mentioned that "the main driver in many ways, as well as the main support in recent times have been the expectations that the Bank of England will raise interest rates at some point next year, probably the beginning 2016."
GBP/USD encounters a large obstacle
Yesterday the Sterling suffered a rather heavy loss against the US Dollar. Nonetheless, the support cluster around 1.5190 was able to prevent the GBP/USD pair from falling deeper. Even though this cluster should turn the tide for the Cable, there is a high chance that it will be breached due to poor fundamental data today. The worst-case scenario is a slump to 1.5140, namely the Bollinger band, while a hike back to 1.5250 is also possible. Technical studies, however, a suggesting the Pound is to decline again.
Daily chart
The Cable resumes trade in the descending channel. After reaching the resistance trend-line yesterday, the GBP/USD bounced back to 1.52, from where it attempted to edge higher again. However, the channel pattern was not broken and the Sterling fell even lower in the evening. Right now the pair is climbing slowly and steadily, yet again approaching the upper border of the channel, where it should meet resistance.
Hourly chart
Bulls now take up the majority of the market
First time in more than two months market sentiment shifted to the bullish side, as 53% of all positions are now long. The share of buy orders edged back up to the last week's level of 57%.
The SAXO Bank traders' sentiment remains bearish, as only 46% of their clients hold long positions. Meanwhile, the sentiment among OANDA traders slightly improved, with 44% of the positions now being long.
Spreads (avg, pip) / Trading volume / Volatility
19% of traders expect the British pound to cost between 1.48 and 1.50 dollars in three months
The mean forecast for Sep 2 is 1.5544. However, votes shifted back to the downside, as 51% of traders now expect the Sterling to cost less than 1.56 dollars in three months. Nonetheless, the most popular price range remains the same, 1.48-1.50, chosen by 19% of the survey participants. The second most popular choice is now between 1.60 and 1.62, selected by 13% of the surveyed.