- No gap between the buy and sell orders
- No significant difference between the longs (53%) and shorts (47%)
- 18% of traders assume the British Pound will cost between 1.58 and 1.60 dollars in three months
- Attempts of the Sterling to rally should be stopped at 1.55
- Beneath 1.53 the Pound should aim for the Oct 12 low
- Upcoming events today: UK GDP (Q3), US (Core) Durable Goods Orders (Sep), CB Consumer Confidence (Oct)
The Sterling held relatively well yesterday, considering the bearish fundamentals. The currency outperformed (CHF, USD, CAD) and underperformed (EUR, AUD, NZD) the same number of currencies, while staying unchanged with respect to the Japanese Yen (-0.05%).
A stronger Pound coupled with sluggish overseas demand continued to weigh on the UK manufacturing sector and exports. The UK factories production dropped in the three months to October for the first time in last two years. The Confederation of British Industry's total orders index declined to -8%, the lowest level since October 2012. New export orders dropped at the fastest pace in three years and new domestic orders decreased over the quarter for the first time since April 2013. Economists said effects of the strong Pound will be felt for some time. Amid a gloomier outlook, manufacturers scaled back hiring in recent months and planned to cut spending on training and innovation. Companies voiced concerns about political and economic conditions abroad. The recent Markit/CIPS survey showed the manufacturing PMI slipped to the lowest level in three months of 51.5 at the end of the third quarter, from August's revised 51.6. Meanwhile, employment in the sector declined for the first time since April 2013, the survey showed.
The initial estimate of GDP later in the day is expected to show the services sector continued to drive overall economic growth in the third quarter. The consensus forecast is for quarterly growth of 0.6% in the July-September period, down from 0.7% in the second quarter.
Oct 27 to be volatile despite being the start of the week
There will be three major for the GBP/USD pair releases today. The period of increased volatility should start with the UK GDP growth, which is expected to slow to 0.6% in the third quarter after 0.7% for the previous period. The next in line is a portion of the US data with the core durable goods orders in the lead. According to the estimates, the aggregate value of orders placed with manufacturers for long life expectancy goods, excluding volatile items, will show no change. Finally, consumer confidence is set to weaken to 102.5 in October from 103 in the previous month.
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 at the beginning 2016."
GBP/USD supported by monthly PP
The Cable did not extend the latest decline yesterday, as the market confirmed support at 1.53, represented by the monthly PP and 20-day SMA. However, the bias is negative, and any attempts of the Sterling to rally should be stopped at 1.55, where the monthly R1 merges with the 100-day SMA and this month's highs. Nevertheless, we expect the bears to be able to push the price beneath 1.53 in the nearest future, which in turn will imply a sell-off to the Oct 12 low and 23.6% Fibo (07.2014-04.2015 down-move) at 1.52.
Daily chart
Meanwhile, the hourly chart give us almost no clues regarding the short-term direction of the pair. But once beneath the recent low at 1.5310, it is the Oct 13 low at 1.52 that should be targeted next.
Hourly chart
Traders fail to reach consensus
There is currently no significant difference between the longs (53%) and shorts (47%), nor there is any gap between the numbers of pending buy (50%) and sell (50%) orders.
We continue to observe indecision among the OANDA traders as well: 49% are bulls and 51% are bears. The sentiment at SAXO Bank, however, has noticeably deteriorated since the previous report. At the moment 41% of open positions are long, down from 47% recorded 24 hours ago.
Spreads (avg, pip) / Trading volume / Volatility
18% of traders assume the British Pound will cost between 1.58 and 1.60 dollars in three months
According to the survey, conducted between Sep 23 and Oct 23, the Sterling is expected to cost 1.5507 dollars in three months. The 1.58-1.60 price interval received the largest number of votes, namely 18%, followed in popularity by two other intervals: 13% of voters believe the Pound will be either in the 1.62-1.64 interval or it will cost less than 1.46 dollars after three months. Nonetheless, the exactly half of the voters (50%) believes that the Pound will fall below the 1.56 major level by January 23.