- The portion of orders to acquire the Cable declined from 56 to 51%
- The share of longs now takes up 60% of the market
- 18% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
- The nearest resistance is located around 1.5622, the weekly PP
- Immediate support, represented by the monthly PP, lies at 1.5594
- Upcoming events today: UK Manufacturing Production, UK NIESR GDP Estimate, US Trade Balance, US JOLTS Job Openings
The Sterling was one of the best-performing currencies on Monday, as it appreciated against most major peers. The largest gains of 0.78% and 0.72% were detected versus the Loonie and the Euro, respectively; following with lesser gains against the Aussie (0.49%) and the Swissie (0.44%). The Pound also remained relatively unchanged versus the Yen, adding only 0.05%.
Activity in the UK services sector rose more than expected last month, suggesting the UK economy picked up momentum going into the second half of the year. The Markit/CIPS services PMI climbed by 2 points in June to 58.5, overshooting economists' forecast and staying firmly above the 50-mark threshold that separates growth from contraction. The breakdown of the upbeat PMI data sent some mixed signals. British services companies took on staff at the slowest pace this year, while new orders also increased at the weakest pace so far in 2015. However, businesses' optimism about the coming year held virtually unchanged at a high level.
Combined with manufacturing and construction data earlier this week, Markit said Britain's economy was likely to expand around 0.5% from April through June, compared with 0.4% in the first quarter. However, the recovery looks increasingly imbalanced, as growth in the country's manufacturing sector declined to the lowest level in more than two years in June. The UK manufacturing PMI for June dipped to 51.4, from 51.9, while economists had been expecting a further advance to 52.5. The strong Pound, sluggish demand from the Euro zone, where the Greek debt crisis is sapping demand is hampering the British economy.
Paul Bednarczyk, head of research at 4CAST, is optimistic with respect to the world's largest economy over the coming months, saying that "we should be seeing some better US numbers coming through," which will lead the Cable to 1.54. Meanwhile, the analyst considers that "over the next three months Sterling will perform well on a trade-weighted basis," but GBP/USD is still likely to decline to 1.4850. In the longer-term perspective, Bednarczyk is also bearish, setting his 12-month forecast at 1.42, which will be a story of Dollar strength rather than Sterling weakness.
UK Manufacturing Production and US Trade Balance
The UK Manufacturing Production is the first key release this week. After showing a lot worse-than-expected figures on the last report, which showed the weakest performance of the Manufacturing Production since March, markets are expecting a rebound today and growth to be resumed. The Manufacturing Production takes up around 80% of all industrial production, therefore it should have a serious impact on all Sterling crosses. Furthermore, the NIESR GDP Estimate, an indicator, that helps keep track of the GDP, is also forecasted to improve, showing signs of more economic growth in the UK. From the US side we should pay the most attention to the Trade Balance, which is due at 15:30 PM GMT. Not only the Trade Balance is likely to remain negative, but also weaken even further this month, meaning that the US imported more goods than exported. This is also an event of high importance and tends to have a strong impact on the market. The JOLTS Job Openings, a less important even today, is also expected to worsen slightly, backing up the overall situation of the Cable to rise by the end of the day.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 the beginning 2016."
GBP/USD attempts to break out of the bearish trend
Although the Sterling appreciated against the US Dollar yesterday, gains were limited by the monthly PP around 1.56. The Pound is still likely to outperform the Greenback today, in spite of mixed technical indicators, as it closed just above a strong support. The weekly PP, however, now acts as an immediate resistance, but we should see a surge towards 1.57, where the 20-day SMA rests, unless the fundamental data disappoints.
Daily chart
Although the Cable did rally yesterday, it is not quite out of the bearish trend yet. After a surge on Monday, the pair again started to experience weakness and edge lower. Today the Sterling was unable to maintain trade above the 1.56 major level and is on the way to negate Monday's gains. However, the 1.5530 level prevented the GBP/USD from falling lower earlier and could provide sufficient support for the Pound to bounce back.
Hourly chart
Open positions keep rising
Market sentiment keeps improving, as bulls continue gaining ground; their share of longs now takes up 60% of the market. Meanwhile, the portion of orders to acquire the Cable declined from 56 to 51%.
Other market participants retain a bearish outlook towards the Cable. The SAXO Group's sentiment slightly improved, but, nonetheless, remains bearish, as 58% of their traders hold short positions. Meanwhile, OANDA traders' sentiment has reached a perfect equilibrium.
Spreads (avg, pip) / Trading volume / Volatility
18% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
The survey participants have high expectations concerning the Cable, as the majority of them, namely 71%, assume the Sterling will cost more than 1.54 dollars after three months. Nevertheless, the most popular choice remains the 1.60-1.62 interval, selected by 18% of the voters. The 1.50-1.52 price interval now has only 13% of participants voting for it. According to the survey conducted between June 07 and July 07, the mean forecast for October 07 is 1.5789.