- Sell orders jumped from 51 to 63%
- Share of shorts increased from 58 to 60%
- Pair is facing a notable resistance level at 1.3320
- Our current target is 1.3385/70
- 52% of traders reckon GBP/USD will be at 1.30 or lower in three months
- Upcoming events: UK Services PMI
UK manufacturing sector rebounded unexpectedly from the post-Brexit shock in August, official data revealed on Thursday. The Markit/CIPS Purchasing Managers' Index, a closely followed gauge of factory activity in the region, jumped to 53.3 points in the reported month after hitting a three year low of 48.3 last month. Market analysts pencilled in a slight acceleration to 49.1 in the eight month of the year. The manufacturing sector accounts for only 10% of Britain's economy; however, if the services sector PMI, due today, supports the same positive trend, analysts would have to reassess the economic impact of the Brexit vote. Back in July, weak PMI data suggested the UK economy contracted at the fastest pace since the financial crisis in 2008-2009 and forced the Bank of England to cut its interest rates by 25 basis points to a record-low 0.25%.
After the release of the UK Manufacturing PMI for August, the British Pound rose to its highest level since August 26, trading above $1.32 against the US Dollar. After the June 23 referendum, the Sterling dropped more than 10% against the Greenback, as well as the Euro, and failed to recover any ground against other major currencies, as analysts warned of the long-term negative effects of Brexit.
Will Services PMI surprise as well?
After outstanding reports on Manufacturing and Construction PMIs the question is whether Services PMI will also be able to surprise to the upside. The British Pound surged nearly a whole percent on the day of Manufacturing PMI, meaning we may expect an even stronger reaction today, although usually thin trading on Monday and a strong rally last week may somewhat dampen the positive effect. The consensus is that the figure will come in at 49.1 following the expected 47.4.
GBP/USD aims for 1.3385/70
The Cable is now well-supported both from the UK and US sides, meaning we may expect an even stronger Pound in the near future. Technically, however, the rally is not as apparent as it is from the fundamental perspective. The pair is facing a notable resistance level at 1.3320, represented by the 23.6% retracement level from the Jun 23-Jul 5 sell-off. At the same time, long-term Sterling appreciation is not supported by the indicators, of which only daily ones suggest more expensive UK currency. Nevertheless, our current target is 1.3385/70.
Daily chart
In the lower timeframe the downside risks are increasing, as the price is approaching the upper bound of the channel it has been forming for the past two weeks. Resistance is also implied by the August maximum, but we see a formidable demand zone at circa 1.3240, where the recently broken trendline is reinforced by the 55-day SMA and weekly PP.
Hourly chart
SWFX market is net short
Traders are selling the Sterling more than they are buying the currency—the share of shorts increased from 58 to 60%. And they plan to sell even more if the recovery continues, as the percentage of sell orders jumped from 51 to 63%.
A somewhat similar situation is at Saxo Bank, where bears are also in majority, but here with 45% of the market. At the same time, there is indecision among OANDA traders, 52% of whom are long and 48% of whom are short the British currency, meaning the sentiment is rather neutral than bullish.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees the GBP/USD below 1.30 in three months
Slightly more than half of traders (52%) believe the British currency is to cost 1.30 or less dollars after a three-month period. The most popular price intervals, however, were the 1.26-1.28, 1.34-1.36 and the 1.36-1.38 ones, all three selected by 13% of the voters. The second most popular choice implies that the Sterling is to cost either between 1.28 and 1.30 dollars or between 1.38 and 1.40 dollars in three months, both chosen by 11% of the surveyed. At the same time, the mean forecast for Dec 02 is 1.3064.