- The number of purchase orders dropped from 69 to 44%
- 65% of traders hold long positions
- Immediate resistance is represented by the monthly S1 at 1.4567
- The Bollinger band around 1.45 is the nearest support
- 63% of traders reckon GBP/USD will be at 1.50 or lower in three months
- Upcoming events: US Labor Market Conditions Index, UK Manufacturing Production, US JOLTS Job Openings, FOMC Member Fischer Speech, BoE Gov Carney Speech
The British currency's performance was rather mild on Friday and over the weekend, as it sustained losses against most major peers. The Pound lost the most against the safe haven Yen, falling 1.00%, followed by a 0.69% decline against the Buck and 0.53% versus the Swiss Franc. Even though the Sterling dropped 0.29% against the Loonie, it managed to appreciate 0.54% and 0.15% against the other commodity currencies, such as the Kiwi and the Aussie, respectively.
The UK's trade deficit in goods and services shrank in November as the value of oil imports dropped. The British total trade shortfall came in at 3.2 billion pounds in the reported month, down from 3.5 billion pound trade gap in October, according to the Office for National Statistics. The deficit for the three months to November was 7.7 billion pounds, down 1.0 billion pounds from the previous quarter. In volume terms, exports of goods climbed 0.6% from October. However, that followed a drop of 2.5% in the month before, leaving them up by just 0.6% in terms of quarterly rates of change. Strength in Sterling, particularly versus the Euro, continued to weigh on exports amid sluggish global demand. Imports increased by 2.5% over the same time frame. The Confederation of British Industries that despite exports remaining the weakest spot, manufacturers' export orders had improved in the last month of 2015.
The UK's trade balance remains one of the weakest segments of the economy, with foreign trade in goods posting persistent deficits since 1998. Reducing the trade deficit so that the economy is less reliant on domestic demand is part of the government's policy to rebalance the economy.
Uneventful Monday
Monday is quiet in terms of fundamental data, therefore, focus shifts to the fundamentals on Tuesday, namely, the UK Manufacturing Production. The Manufacturing Production is released by the National Statistics 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. A rather strong rebound in the month on month figures is expected tomorrow. Furthermore, the US JOLTS Job Openings data is due on Tuesday as well. It shows the number of job openings during the reported month, with exception of the farming industry. Even though it is released late, it might still have a significant impact, as this release is connected with the overall employment.
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 struggles to regain bullish momentum
On Friday the GBP/USD currency pair pierced the 2015 low, falling to a fresh six-year low, amid strong US NFP figures. From the technical point of view the Cable should undergo a corrective rally today, as the bearish momentum persisted for two weeks straight; however, risks of edging lower persist, with technical studies retaining mixed signals. The monthly S1 at 1.4567 is the nearest resistance, whereas the Bollinger band is providing support around 1.45. Nevertheless, due to a breach of the key support on Friday, the decline might now extend all the way down to the 2010 low at 1.4230.
Daily chart
After having rebounded from the down-trend the GBP/USD currency pair suffered another decline on Friday. However, losses were once again limited by the trend-line, which in turn is now providing sufficient support for the Cable to begin its recovery, but with risks of another retest of the down-trend possible.
Hourly chart
Bulls remain strong
Today 65% of traders hold long positions (previously 64%), while the number of purchase orders dropped from 69 to 44%.
SAXO Group and OANDA have different perspectives towards the GBP/USD. Among SAXO Group traders, sentiment worsened, as 52% of their positions are now short (previously 53%); whereas 67% of OANDA traders have a positive outlook towards the Cable, compared to 66% last Friday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.50 in three months
The majority of votes is still on the bearish side, as most of the survey participants (63%) believe the GBP/USD is going to cost 1.50 or less US dollars in three months. According to the survey, the most popular choice was the one implying that the Sterling will cost between 1.42 and 1.44 dollars in three months, believed by 32% of the voters. Meanwhile, the second most popular choice is divided between two intervals, namely 1.46-1.48 and 1.50-1.52, both voted for by 11% of the surveyed. At the same time, the mean forecast for Apr 11 is 1.4804.