- Share of buy commands dropped from 59 to 49%
- Percentage of bulls contracted from 57 to 50%
- GBP/USD heads towards the 2013 low at 1.48
- Survey: Sterling to decline in the long run
- Upcoming events: UK Construction PMI, US Factory Orders
Despite the yesterday's data exceeding the expectations of the market, the British Pound ceded some of the ground, losing 1.48% against the Loonie and 0.79% against the Kiwi.
Business activity in the British factories rose more than expected in January amid a recovery in export orders and lower production costs as raw material prices dropped at the quickest rate since May 2009. Markit/CIPS UK manufacturing PMI climbed to 53.0 from an upwardly revised 52.7 in December, staying comfortably above the crucial 50-level, which separates contraction from expansion. The gauge has been in the expansion territory for 23 months in a row. Output growth and new orders rose, while input costs fell at the fastest pace in over five and a half years, according to data compiler Markit. That meant the prices charged by producers to customers dropped for the first time in 19 months and at the fastest pace since September 2009.
British exporters have been hurt by the sluggish Euro zone, their top trading partner, amid weak consumer and business confidence in the currency bloc. The latest manufacturing data suggested there have been some glimmers of light from overseas while domestic demand still remained the main driver. British manufacturing output is around 5.3% below its pre-downturn high in early 2008. Despite growing last year at the fastest annual rate since 2007, the UK economy expanded more slowly than expected in the final quarter of 2014, and the government will be trying to avoid signs of a further slowdown ahead of a May 7 national election.
UK Construction PMI
Perhaps today's main event for GBP/USD is going to be the UK Construction PMI that is estimated to have declined from 57.6 to 56.9. From the US side of the pair the Census Bureau is scheduled to release the change in the volume of Factory Orders that is expected to be even more negative than a month earlier.
GBP/USD to be sold off from 1.5030
Simon Smith, Chief Economist at FXPro, advises not overestimate bullish potential of the US Dollar in 2015. According to him, "we will see Dollar strength through the year, but it's going to be a very difficult year in terms of trends".
As for the Sterling itself, Charles Purdy, CEO of Smart Currency Exchange, sees weakness in the nearest future, arguing that "the UK election will count against Sterling" in terms of "higher levels of uncertainty". According to the analyst, GBP/USD is likely to fall to 1.46 by the end of March. However, in a year he expects the exchange rate to recover to 1.48, after the BoE hikes the interest rates in the second half of 2015.
Daily chart
GBP/USD has established a new accelerated down-trend, which has been guiding the pair south since Jan 28, and it is likely to stay intact until the price falls down to the falling support line at 1.4930/20. For the time being the near-term technical studies support this view; however, the longer-term indicators are mixed, and the demand at 1.50 proves to be significant. Nonetheless, eventually the rate is expected to descend down to the 2013 low at 1.48.
Hourly chart
SWFX sentiment becomes neutral
The SWFX market is no longer net long the British Pound, the percentage of bulls contracted from 57 to 50%. A similar change was recorded among the nearby pending orders, as the share of buy commands dropped from 59 to 49%, meaning the demand is weak.
The sentiment at OANDA is also neutral, with 53% of positions being long and 47% being short. At the same time, a significant majority (59%) of traders at SAXO Bank holds Sterling-long positions.