- There has been a noticeable change in the distribution between the buy and sell orders in favour of the former
- The Cable is currently moving towards 1.5650
- GBP/USD is approaching the apex of the falling wedge pattern
- Upcoming events: US Consumer Confidence this Tuesday
Meanwhile, Jean-Francois Owczarczak, the director of Fingraphs.com, says "the Cable has been correcting strongly", and notes that "it's not an impulsive move yet, but could become such if it [GBP/USD] were to move below 1.55. According to him, there's an important support we're approaching. If it is violated, it could "open more potential to the downside". As for the macroeconomic context, there are no important updates yet, but we should remember the productivity in the British labour market rose in all major sectors. This should provide the Bank of England with some relief as an increased productivity coupled with rising wages should limit any significant upward inflationary pressures. UK labour output picked up by 0.6% in the three months through September, the biggest advance in more than three years, although it remains below pre-financial crisis levels, according to the Office for National Statistics. Labour market productivity in the UK, which is measured by output per hour, rose 0.3% compared with the same period in 2013, but it remains 2% below its level in 2008, which is likely to restrain real wage growth. Productivity improved in all of the main sectors of the UK economy in the September quarter, by 0.5% and 0.6% in the production and the service industries, respectively.
The relationship between wage growth and productivity is crucial to inflation forecasting at the BoE. Wage growth, just like production, has been very slow in the last six years. Total pay, which includes bonuses, increased 1.4% in quarter to October while regular pay, excluding bonuses, rose by 1.6%, both above the current level of consumer-price inflation. Low inflation keeps the BoE firmly dovish. For the majority of the Monetary Policy Committee, the outlook for inflation justifies keeping the current level of interest rates.
Awaiting UK manufacturing PMI on Friday
The next notable release concerning the well-being of the United Kingdom will be published on Jan 2, when Markit will be expected to report growth in the manufacturing sector of the economy. However, the volatility in GBP/USD is likely to retun earlier, on Dec 30, when we will get an update on the consumer confidence in the USA.
GBP/USD approaches 1.5650
Having established a solid support at 1.55 last week, the Cable is currently moving towards 1.5650. There the currency pair will meet the down-trend line that is strengthened by the weekly R1 and 20-day SMA. If the Pound manages to close above this supply zone, it will mean the falling wedge has been broken to the upside, implying further appreciation of the Sterling. Alternatively, if 1.5650 stays intact, 1.54 will probably be reached in the next few weeks.
Daily chart
Although the resistance at 1.555 is no longer a threat, GBP/USD is not in a hurry to rally. There is a 200-hour SMA that creates a potential ceiling for the pair at 1.56. If it is broken, the Sterling will have a good opportunity to test the down-trend at 1.5650/30.
Hourly chart
Still more positions are long
A similar distribution between the bullish and bearish market participants is observed at OANDA, where 57% of open positions are long and 43% are short, and at SAXO Bank, where 59% of open positions are long and 41% are short.