- The share of sell orders increased from 56 to 66%
- 56% of positions are long again
- Immediate resistance is represented by the weekly S1 at 1.4980
- The Bollinger band and the weekly S1 around 1.4930 are the nearest support
- 69% of traders reckon GBP/USD will be at 1.54 or lower in three months
- Upcoming events today: UK Services PMI, US Jobless Claims, US Markit Services PMI, US ISM Non-Manufacturing PMI, US Factory Orders, Fed Chair Yellen Testimony, FOMC Member Fischer Speech
The British Pound suffered rather heavy losses on Wednesday, falling against most major currencies. The Sterling was pressured down by a poor reading of the Construction PMI, with the largest decline registered against the Swiss Franc (1.60%), followed by 0.97% and 0.87% losses versus the Loonie and the US Dollar, respectively. The British currency was the most resilient versus the Kiwi, as the GBP/NZD dropped only 0.31% lower.
Activity in the UK construction sector dropped to the lowest level in seven months in November, hurt by the weakest growth in housing activity since mid-2013, suggesting the sector will continue to weigh on Britain's recovery in the last quarter. The Markit/CIPS UK construction PMI plunged to 55.3 from 58.8 in October. While the reading remained firmly above the 50 level that indicates an expansion, it was the slowest pace of growth since April and below economists' predictions for a slight decline to 58.5. The Pound lost 0.28% versus the US Dollar to trade at 1.5038, down from 1.5065 before the data release.
Output in the construction sector was expected to be the largest downward drag on the overall UK economy in the third quarter, plunging 2.2%, the largest decrease since 2012. Markit's earlier reports showed that business activity in the manufacturing sector slowed in November from the highest level in 16 months, as output and new orders rose at a slower rate. Investors now turn their attention to the services PMI due later in the day. Britain's biggest contributor to the total economic output is expected to climb to 55 in November from October's 54.9.
UK Services PMI and US ISM Non-Manufacturing PMI
The UK Services PMI are due today and, unlike the Manufacturing or Construction PMIs, an improvement is expected. The Services PMI is released by both the Chartered Institute of Purchasing & Supply and the Markit Economics. It is an indicator of the economic situation in the UK services sector and captures an overview of the condition of sales and employment. It is worth noting that the UK service sector does not influence, either positively or negatively, the GDP as much as the Manufacturing PMI does.
The US Services PMI, or the ISM Non-Manufacturing PMI, is scheduled to be released later today. Although according to the forecast the PMI is likely to drop a little, the US Factory Orders are expected to rebound after a rather serious slowdown in October's release. The Factory Orders could turn the tables around in the fundamental market movers today, but the main non-data release event is the Fed Chair's Speech today, scheduled at 15:00 PM GMT (as well as the Services PMI and the Factory Orders). Any hints concerning the Meeting Minutes and the possible rate hike decision later this month are likely to cause volatility in USD crosses.
Ross Walker, economist at Royal Bank of Scotland Group, suspects that GBP/USD may descend to 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross 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 at the beginning 2016."
GBP/USD heals wounds after Wednesday's slump
The fundamental data yesterday was in favour of the US Dollar yesterday, forcing the Cable to touch the 1.49 level. Even though trade closed above the intraday low, the target support was still breached. Today the Bollinger band and the weekly S1 are keeping the GBP/USD afloat, while the monthly S1 should hold heavier losses in case the immediate cluster fails. Technical studies shifted from bearish to mixed signals in the daily timeframe, indicating a possible rebound. The weekly S1 is the closest resistance, but the Pound has the potential to retake the 1.50 major level.
Daily chart
The Nov low was unable to keep the GBP/USD from edging lower, which resulted in a rather sharp slump yesterday. However, the pair somewhat rebounded from the support line, which has been occasionally causing the pair to bounce back since July 2015upon getting reached. The trend-line is still being tested, a breach of which is likely to trigger a decline towards the 2015 low of 1.4565 in the medium term.
Hourly chart
Market sentiment bullish again
Bulls and bears broke out of the equilibrium, with 56% of positions now long. The share of sell orders increased again, from 56 to 66%.
OANDA and SAXO Group now both have a positive outlook towards the GBP/USD. At OANDA 60% of traders are holding long positions and the remaining 40% - short. Meanwhile, the share of bulls at SAXO Group is taking up 51% of the market, up from 44% on Wednesday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.54 in three months
The majority of votes shifted to the bearish, as most of the survey participants (69%) believe the GBP/USD is going to cost 1.54 or less US dollars in three months. The most popular price interval is the 1.48-1.50, chosen by less than a quarter (24%) of the voters, while the second choice in popularity was divided between the 1.46-1.48 and the 1.50-1.52 price intervals, both selected by 13% of survey participants. Meanwhile, the mean forecast for Mar 03 is 1.5175.
Majority of Dukascopy Community members are bearish on the pair, with 64% of votes speaking in favour of pair's depreciation. Nevertheless, the pair is likely to reach 1.509 by this Friday.
Among the bulls a member of the Dukascopy Community, Likerty, shared his thoughts on the Cable's possible performance: "the Pound is ready for a new medium term bullish correction, but probably will stay slow within the next week."
Meanwhile, a trader with a bearish perspective towards the GBP/USD, Jignesh, believes that the Cable continues its bearish trend with renewed pressure in the last week. "The pair is however approaching some major support levels at the 1.50 level, where a major channel comes into play as well," he added.