- Market sentiment remains bullish at 59%
- The portion of orders to acquire the Pound inched down from 56 to 55%
- Immediate resistance is around 1.2680
- The closest support is circa 1.2532
- Upcoming Events: BoE Inflation Report, UK Official Bank Rate, BoE Governor Carney's Speech, US Initial Jobless Claims, US Non-farm Productivity, US Unit Labor Costs
British manufacturing activity fell during the first month of 2017, as the weak British Pound pushed the prices of imports sharply higher, a private survey revealed on Tuesday. Markit/CIPS said its Purchasing Managers' Index dropped to 55.9 points in January after hitting its two-and-a-half year high of 56.1 in December. However, the figure came out in line with market analysts' expectations and remained above the 50-point level separating expansion from contraction for the sixth straight month. Data showed the weaker Sterling boosted new export orders but also drove acceleration of manufacturers' input cost inflation.
However, analysts suggest that the positive effects of the weak Sterling on British exports could actually come to an end in the upcoming months. Back in January, factory prices reached their highest level since 1992, when the first Markit PMI survey for the UK manufacturing sector was published. Last month, consumer price inflation hit its two-and-a-half year high of 1.6%, remaining just 0.4% below the Bank of England's inflationary target. Wednesday's survey suggests that the manufacturing sector is likely to make a positive contribution to the country's economic growth in the first quarter of 2017. After the release, the Pound touched its six-day high of 1.2614 against the US Dollar.
BoE to decide whether to raise interest rate
From the UK side the BoE's Monetary Policy Summary is due. The BoE is also to decide whether to raise, lower or leave the Official Bank Rate unchanged today. Any unexpected changes are likely to cause serious volatility. Overall, Thursday is a rather uneventful day, as the upcoming US data is unlikely to have a serious impact on the Cable, as well as no changes in the BoE's Rate decision are likely to occur. The only possible driver is to be the expectations of the BoE lowering their economic growth forecast.
GBP/USD trades in murky waters
Despite a strong US ADP Employment Change reading on Wednesday, the Sterling still outperformed the US Dollar, successfully climbing over the 1.26 major level. Resistance was encountered only around 1.2675, where the 23.60% Fibo and the weekly R1 rest. This group of levels keeps providing relatively strong resistance today, which is likely to cause the Cable to undergo a small bearish correction—what usually occurs ahead of the Friday's NFP data if the figures are anticipated to disappoint. As a result, the GBP/USD pair is expected to slide back down towards the 1.26 mark.
Daily chart
The recovery extended on Wednesday, with strength initially persisting on Thursday as well. The 200-hour SMA keeps providing support, while the main target is the December 2016 high of 1.2775, which the Cable has the potential to reach today.
Hourly chart
Traders mostly bullish
Although not as strong as yesterday, but market sentiment remains bullish at 59% (previously 63%). At the same time, the portion of orders to acquire the Pound inched down from 56 to 55%.
A slightly less optimistic situation is observed elsewhere. For example, 55% of positions open at OANDA are currently long. This is more than the share of shorts (45%), barely sufficient for the sentiment to be called bullish. However, sentiment at Saxo Bank slightly weakened over the day, with 50% of traders now being long and the other 50% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect the Cable to keep falling
By the end of the next three months traders expect the Cable to fall under the 1.22 major level, as 50% of survey participants believe so. While the current price is around 1.25, the average forecast for May 02 is 1.2287. However, the 1.14-1.16 interval is now the most popular one, having 18% of the votes, while on the second place is the 1.20-1.22 price range, with 13% of poll participants choosing it. Furthermore, the 1.30-1.32 interval was chosen by 11% of the voters.