- 51 of all pending orders are to buy the Pound
- 57% of all open positions are long
- Gains could be capped around 1.28
- Significant support rests circa 1.2624
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Upcoming Events: UK CPI, UK PPI Input, UK RPI, UK HPI, US PPI and Core PPI
British manufacturing and industrial production rose less than expected in April but broke, following three consecutive months of declines. The Office for National Statistics reported on Friday that manufacturing production climbed 0.2% on a seasonally adjusted basis in April, falling behind expectations for a 0.8% rebound and following the preceding month's drop of 0.6%. On a yearly basis, manufacturing production remained unchanged in the reported month, after climbing 2.2% in March. Friday's report also showed that industrial production in Britain advanced 0.2% month-over-month in April, compared to the previous month's fall of 0.5%, although analysts anticipated an increase of 0.7%.
On an annual basis, industrial production declined 0.8% during the reported month, following the preceding month's climb of 1.4%. Other report released by the ONS on Friday showed that the country's goods trade gap narrowed to £10.4B in April, whereas the prior month's trade deficit of £13.4B was revised down to £12.0B. The narrowing of the gap was driven mainly by lower imports that dropped more than 5% in April.
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Uneventful Monday
Even though Monday is quiet in terms of fundamental data, Tuesday brings quote a number, such as the UK inflation data. First of all, the UK CPI, which is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The CPI is a key indicator to measure inflation and changes in purchasing trends. In ‘Core' CPI the seasonally volatile products, such as food and energy, are excluded in order to capture an accurate calculation. Second, the PPI Output. It is a monthly measurement of the prices changes of goods produced by UK manufacturers. Generally speaking, a price hike generates higher retail prices for consumers. At the same time, the PPI Input measures the rate of inflation experienced by the UK manufacturers when buying goods and services. It captures changes in the average price of a fixed basket of goods and services purchased by the UK manufacturers. The US PPI is also due tomorrow. It, however, measures the average changes in prices in primary markets of the US by producers of commodities in all states of processing. Changes in the PPI are widely followed as an indicator of commodity inflation.
Read More: Fundamental Analysis
GBP/USD takes a breath
After Thursday's fall the Cable has entered a period of stagnation, which could just be a calm before the storm, with this week's Fed and BoE meetings due. Consequently, no significant changes are likely to occur ahead of those meetings, meaning the GBP/USD pair is likely to remain relatively unchanged and hold around the monthly S1 of 1.2758. Risks remain skewed to the downside, as that door got open by the election results in the UK, with the Pound now being exposed to the 1.25 area. Technical indicators suggest the Sterling is to weaken against the Buck today, but the 1.27 major level is expected to hold for the time being. In case this psychological support is breached, the next target will be the monthly S2 at 1.2624.
Hourly chart
The daily chart still suggests the Cable is to keep weakening, as the common support line of two wedge patterns was breached. The 1.2624 mark is confirmed as a strong demand area, with the 100 and the 200-day SMAs bolstering it. Once the Pound hits this handle – a potential recovery could occur.Daily chart
Read More: Technical Analysis
Traders remain neutral
Market sentiment remains somewhat bullish, as 57% of all open positions are still long. At the same time, there are only 51% of all pending orders set to acquire the British Pound.
A less optimistic situation is observed elsewhere. The sentiment at OANDA remains bearish, namely 58% of all open positions are short and the remaining 42% are long. Meanwhile, sentiment at Saxo Bank is also bearish, with 59% of traders now being short and the other 41% - long on the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders see Pound recovering
© Dukascopy Bank SATraders believe the Cable is to fall under the 1.30 major level by the end of the next three months, as 54% of survey participants share this belief. While the current price is around 1.27, the average forecast for September 12 is 1.284. The 1.34-1.36 range is still the most popular price interval, having 23% of the votes, while on the second place is the 1.20-1.22 interval, with 18% of the voters choosing it.