- Purchase orders take up 59% of the market
- 57% of traders hold long positions
- The nearest resistance is located around 1.4385
- Immediate support rests circa 1.4205
- 63% of traders reckon GBP/USD will be at 1.46 or lower in three months
- Upcoming events: BoE Governor Carney Speech, MPC Member Weale Speech, US NFIB Small Business Index
The Sterling started the week with relatively good performance against most of other major currencies. The largest gains of 0.57% were registered against the Swiss Franc, whereas the second notable rally was seen against the New Zealand Dollar, namely 0.42%. Meanwhile, mild gains of 0.25% and 0.16% were registered against the Buck and the Euro, respectively. The Pound failed to appreciate against other commodity currencies, as the GBP/AUD slid 0.18% and the GBP/CAD only 0.01%. The GBP/JPY also remained relatively unchanged, edging 0.01% higher.
Business activity in the UK's dominant services sector, which accounts for 88% of the whole economy, cooled sharply in February amid concerns about global economic slowdown, market turbulence and the possibility of Brexit. The Markit/CIPS services PMI plunged to 52.4 in February, down from 55.6 in the prior month, marking the lowest level since March 2013. The headline measure came in against economist's projections of 55.1. Growth of both total business activity and new business were the weakest since March 2013, forcing firms to increase employment at the slowest pace in more than two years. The data followed two similar surveys that track activity in the construction and manufacturing sectors, which also fell well short of expectations. The UK construction PMI for February plunged to a 10-month low, while the manufacturing PMI plummeted to a 34-month low, as economic uncertainty weighs on industrial sector.
Britain's all-sector PMI declined to 52.9 in February, down from 56.1 in the prior month, hitting the lowest level since April 2013. The UK's gross domestic product now looks on track to grow by just 0.3% in the first quarter of 2016, Markit estimated, compared with the 0.5% rate in the final three months of 2015, marking the weakest performance since late 2012.
Another quiet fundamental day
Tuesday is also quiet in terms of economic data releases, the only event that might have a serious impact on the Cable is the BoE Carney's Speech later today. However, tomorrow attention should be paid to the UK Manufacturing Production. The Manufacturing Production is released by the National Statistics and measures the manufacturing output. Manufacturing Production is significant as a short term indicator of the strength of UK manufacturing activity that dominates a large part of total GDP. Another important even will be the NIESR GDP Estimate, which is released by the National Institute of Economic and Social Research, and is an estimate of growth over the last 3 months up to the report which comes out a month before the official announcement. The report is highly reliable and would influence the UK monetary policy. These two events are likely to be the main volatility triggers on Wednesday.
GBP/USD under the risk of returning under 1.42
The British Pound surprised with its performance for another day, as demand at the monthly PP was sufficient to cause the Cable to recover from its intraday low and edge 45 pips higher. The 20-day SMA remains the immediate support today, but is not strong enough to prevent the GBP/USD currency pair from declining if the bearish momentum prevails. The cluster around 1.4125, on the other hand, is likely to limit the losses, as technical studies suggest. However, we should not rule out the possibility of the bulls pushing the pair towards the first resistance area, located around the 1.44 major level.
Daily chart
On the hourly chart the Cable was seen piercing its seven-month down-trend yesterday, which opens the door for more bullish momentum in the future. However, we might first see a corrective decline towards the 1.40 level, but the GBP/USD now has the potential to edge 400 pips higher, until it reaches the second resistance line.
Hourly chart
Three brokers - three sentiments
Today 57% of traders hold long positions, compared to 56% on Monday. Meanwhile, the portion of orders to acquire the Sterling inched 7% points higher. The orders now take up 59% of the market.
The clients of the other two brokers seem to support our sentiment now. OANDA traders are bullish on the UK currency. Right now, 57% of them are long, compared to 66% on Monday. At the same time, among Saxo Bank traders bears took over the majority: 53% of their open positions are short and the other 47% are long.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.46 in three months
The majority of traders (63%) believe the British currency is to cost 1.46 or less dollars after a three-month period. The most popular price intervals were both selected by 15% of the voters, namely the 1.36-1.38 and the 1.48-1.50 ones, while the second most popular choice implies that the Pound is to cost between 1.40-1.42 dollars in three months, chosen by 12% of the surveyed. At the same time, the mean forecast for June 8 is 1.4325.