- The share of purchase orders slid from 74 to 42%
- 58% of traders retain a positive outlook towards the Pound
- Immediate support is represented by the Bollinger band and the weekly S1 around 1.4950
- The weekly PP at 1.5058 is the nearest resistance
- 68% of traders reckon GBP/USD will be at 1.54 or lower in three months
- Upcoming events: FPC Meeting Minutes, US Wholesale Inventories, US Crude Oil Inventories, UK Trade Balance, UK Official Bank Rate and Monetary Policy Meeting
For the third consecutive time the British currency experienced mixed performance. Gains were registered only against the commodity currencies, namely 0.41% against the Aussie and 0.33% versus the Loonie, which suffered from falling oil prices. The Pound, suffered the most versus the Swissie (-1.08%), followed by a 0.82% and 0.67% loss against the Euro and the Yen, respectively.
UK manufacturing production declined unexpectedly in October, signalling a weak start for the industry in the final quarter of the year. Output of British factories dropped 0.4% on the month in October, following a 0.9% increase in September, the Office for National Statistics reported. The biggest contributor to the decrease appeared to be other manufacturing and repair sub-sectors, within which the drop in repair and maintenance of aircraft and spacecraft was the largest downward drag, plummeting 21.5% on a monthly basis. In annual terms, manufacturing output was 0.1% lower compared with October 2014. Overall industrial production climbed as expected 0.1% in the reported month. Nevertheless, industrial output is still almost 9% below its pre-downturn peak in early 2008. Manufacturing output is around 6.1% below its peak.
Markit's headline PMI measure of business activity in UK factories declined in November to 52.7 from a 16-month high of 55.2 in October, as output and new orders rose at a slower pace. Yet, the overall activity so far in the final quarter of the year remained stronger compared with the preceding three-month period. Markit's report also showed little change in the employment level in UK factories following robust job creation in October.
Uneventful Wednesday
Wednesday is a rather quiet day in terms of fundamental events. There are no events from the UK side worth mentioning, as there is calm before the storm (MPC Official Bank Rate Votes). From the US only one release could have a small impact on the markets, namely the Wholesale Inventories. The Wholesale ones show the change in the value of goods held by wholesalers in inventory. The given Inventories are forecasted to show positive to the USD data.
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 risks falling back under 1.50
Weak UK fundamentals triggered another GBP/USD sell-off yesterday, with the pair dropping towards the immediate support at 1.4960. Nonetheless, trade closed above the 1.50 major level, but technical indicators retain their bearish signals, suggesting another decline is possible. The weekly S1 and the Bollinger band around 1.4950 are to limit the dips, whereas the weekly PP keeps providing immediate resistance. None of these levels are expected to be broken today, with a chance of the Cable remaining flat, amid lack of market movers.
Daily chart
The GBP/USD managed to regain the bullish momentum yesterday, despite ending the day lower. The pair has been rising ever since and is now facing a rather strong resistance in face of the 200-hour SMA and a possible down-trend. The 200-hour SMA is unlikely to keep the Sterling from appreciating, while a failure to do so would only confirm the trend-line.
Hourly chart
Market sentiment remains bullish
Less traders retain a positive outlook towards the Pound, namely 58%. Meanwhile, the share of purchase orders slid from 74 to 42%.
OANDA and SAXO Group now have a similar, yet different outlooks towards the GBP/USD. At OANDA 56% of traders are holding long positions and the remaining 44% - short. Meanwhile, the share of bulls at SAXO Group is taking up 49% of the market, up from 46% on Tuesday.
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 (68%) 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 (23%) of the voters, while the second choice in popularity implies that the Sterling will cost less than 1.44 dollars in three months, chosen by 15% of survey participants. Meanwhile, the mean forecast for Mar 09 is 1.5111.
Most of the Dukascopy Community members this week have a negative outlook towards the GBP/USD currency pair, being that 39% of them are long the Sterling and the remaining 61% are short.
Babanu, a trader of the Dukascopy Community, believes that the Pound could outperform the US Dollar by week's end. "I suppose the Pound may found support at weekly pivot, but overall the pair looks ready challenge the weekly resistance at 1.5210 level," babanu commented.
Another trader, shanziester, said that the Cable usually follows the trend of the EUR/USD. "You can see it has moved in the same direction. The pair is highly overvalued now and we can definitely expect a major pullback on Friday," he added.