- The ratio of the buy and the sell orders is now equal to one
- Bullish market sentiment returned to its Wednesday's level of 63%
- Average three-month forecast is 1.5429
- Immediate resistance is at 1.5185 (23.60% Fibo)
- Dips to be limited around 1.5025
- Upcoming events today: UK Construction PMI, US Average Hourly Earnings, US Non-Farm Employment Change, US Unemployment Rate, US Factory Orders, FOMC Member Fischer Speech
The British currency experienced mixed performance on Thursday, as it declined against some major peers, but appreciated versus the others. The most noticeable gain was recorded versus the Swiss Franc, namely 0.43%, while the Sterling remained relatively unchanged against the Yen (0.06%), the Kiwi (0.02%) and the US Dollar (0.02%). However, losses of 0.32%, 0.16% and 0.13% were detected against the Loonie, the Aussie and the Euro, respectively.
The British seasonally adjusted Purchasing Managers' Index, which is set to measure business activity in the country's manufacturing sector, dropped slightly to a three-month low of 51.5 at the end of the third quarter. The final gauge was slightly above market forecasts of 51.3 points and below last month's 51.6 points. This implies that the sector has been growing, as any reading above the threshold of 50 points demonstrates an increase in manufacturing activity.
In the meantime, manufacturing output in the UK grew at the fastest rate in half a year in September, however, still well below the numbers recorded in the opening quarter. Simultaneously, growth in new orders fell to the weakest pace in a year. As a result of all that, enterprises reduced the number of their employees for the first time in two and a half years. With respect to input prices, they continued to decline in September amid lower raw materials prices and particularly crude oil and oil-related costs. Selling prices also tumbled for the first time in three months in September.
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 be a story of Dollar strength rather than Sterling weakness.
UK Construction PMI and US Non-Farm Payrolls
From the UK side the most important data release today is the Construction PMI, released by the Chartered Institute of Purchasing & Supply and Markit Economics. It shows business conditions in the UK construction sector and is worth noting that the construction sector does not influence, either positively or negatively, the GDP as much as the Manufacturing sector does UK; therefore, the impact on the market is likely to be minor. Nevertheless, the forecast stands at 57.50, up from 57.30. From the US side, a number of significant data release are due today, with the most important among them being the Non-Farm Payrolls. The Non-Farm Payrolls are released by the US Department of Labor and present the number of people on the payrolls of all non-agricultural businesses. Fed's Yellen commented that conditions in the labor market have improved, thus, we might see a stronger-than-anticipated figure today, which would boost the US currency. At the same time, the US Average Hourly Earnings and the US Unemployment rate are due, which could help the US Dollar climb or weigh on it. Finally, the US Factory Orders, which are a measure of the total orders of durable and non-durable goods, such as shipments (sales), inventories and orders at the manufacturing level which can offer insight into inflation and growth in the manufacturing sector, as a result, possibly providing some early hints on the monetary policy.
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 the beginning 2016."
GBP/USD stuck between 1.51 and 23.60% Fibo
The British Pound retested the 23.60% Fibo, but remained relatively unchanged over the day, having added only two pips. In spite of the Cable's attempts to edge higher today, the outlook remains bearish. The 23.60% Fibo keeps preventing the Sterling from climbing higher this week, thus, a chance of the GBP/USD reaching this area persist. The base case scenario, however, is a fall towards the 1.51 major level or the immediate support around 1.5025, namely the Bollinger band or the weekly S1. Moreover, technical indicators shifted from neutral to bearish, suggesting a decline is nigh.
Daily chart
The GBP/USD tested the resistance trend-line for a short amount of time, before breaking through. Even though the trend-line was pierced, the Sterling is still likely to encounter resistance at the 23.60% Fibo, which could also soon be bolstered by the 200-hour SMA.
Hourly chart
Bulls prevailing over bears
Bullish market sentiment returned to its Wednesday's level of 63%, while the ratio of the buy and the sell orders is now equal to one.
The sentiment at SAXO Bank remains bullish, as 57% of their traders are long the Sterling. Bulls at OANDA also remain in the majority of the market, with 63% of their positions being long (previously 60%).
Spreads (avg, pip) / Trading volume / Volatility
Average three-month forecast is 1.5429
Judging by the results of the poll among Dukascopy website visitors, traders do not seem to expect a lot of change in the Sterling-Dollar exchange rate during the next three months. The average forecast for GBP/USD is to trade at 1.5429 on Jun 2, but this does not fully reflect the structure of the votes. The most frequently chosen price interval is quite far from the mean value, that is the 1.60-1.62 price range, selected by 16% of respondents each, followed in popularity by 1.48-1.50 (15% of respondents).
Following negative development of the pair during September 21-25 week, participants of our weekly Community Forecasts quiz decided to become much more bearish on the Cable, as currently only 45% of them support movement to the north in course of this week. The average prediction, in turn, is now located at 1.520 level.
On the bullish side, khalidamassi, one of the Dukascopy Community members, says that the Cable fell sharply last week to 1.51, before recovering to 1.52. He believes that it is a strong support, which is likely to hold this week. However, he warns that "the bullish scenario may be threatened by good US NFP numbers." On the bearish side, however, TRENDMASTER suggests that the "Cable remained in bearish market and at risk of further depreciation with strong downtrend formation on monthly/daily and 4-hourly time frame." Consequently, he believes that this week the currency pair will extend its downtrend.