- 59% of all pending orders are to sell the British currency
- 66% of traders are long the Pound
- Immediate resistance is around 1.2270
- The closest support is at 1.2183
- Upcoming events: UK Construction PMI, US ADP Non-Farm Employment Change, US Crude Oil Inventories, US Federal Funds Rate, FOMC Statement
Manufacturing activity in the United Kingdom remained strong but grew at a slightly slower pace last month, a private survey revealed on Tuesday. Markit/CIPS said its Purchasing Managers' Index declined to 54.3 in October, compared to the preceding month's upwardly revised 55.5 points, the highest reading in more than two years. Meanwhile, market analysts anticipated a slighter drop to 54.6 during the reported period. The British economy has performed better than expected so far despite the country's decision to leave the European Union, showing no signs of a widely expected immediate slowdown. Therefore, the Bank of England is unlikely to cut interest rates at its November meeting on Thursday. The October PMI was mainly supported by a combination of higher exports, which were boosted by the fall in the British Pound, and strong domestic demand. However, export growth during the reported month was weaker than in September.
Furthermore, Markit said that inflationary pressures caused by the weaker Pound were starting to be felt by companies, as import prices grew at their fastest pace in over 25 years in October. The Central bank is widely expected to revise upwards its forecast for inflation amid the drop in the Sterling.
US data to have the most impact today
From the UK side there is only one relevant even today, namely the Construction PMI. It shows business conditions in the UK construction sector. It is worth noting that the construction sector does not influence, either positively or negatively, the GDP as much as the Manufacturing sector does. A result that values above 50 is considered as positive and is bullish for the GBP, whereas a result that values below 50 is seen as negative. From the US side the ADP Non-Farm Employment Change is due. It is a measure of the change in the number of employed people in the US. Generally speaking, a rise in this indicator has positive implications for consumer spending, stimulating economic growth. The ADP data provides an early look to the actual employment change data, which is usually released two days later. The most important event, however, will be the FOMC statement and with it, the Federal Funds Rate decision. With a pre-set regularity, a nation's Central Bank has an economic policy meeting, in which board members took different measures, the most relevant one, being the interest rate that it will charge on loans and advances to commercial banks. In the US the Board of Governors of the Federal Reserve meets at intervals of five to eight weeks, in which they announce their latest decisions. A rate hike tends to boost the local currency, as it is understood as a sign of healthy inflation. A rate cut, on the other hand, is seen as a sign of economic and inflationary woes and, therefore, tends to weaken the local currency. If rates remain unchanged, attention turns to the tone of the FOMC statement, and whether the tone is hawkish or dovish, over future developments of inflation.
GBP/USD to keep gravitating towards 1.22
The GBP/USD pair's consolidation trend was preserved yesterday, as the 1.2250 level remained intact. However, the Cable remained completely flat on Tuesday, thus, the outlook is unchanged today, with the Sterling still expected to edge lower. The 20-day SMA and the weekly R1 keep providing immediate resistance just above the 1.2250 mark, whereas the weekly pivot point is the nearest support at 1.2183, also being the main target. At the same time, the 1.2150 level represents the consolidation trend's lower boundary, where demand is likely to be sufficient to trigger a rebound or at least prevent the given pair from sustaining sharper losses.
Daily chart
The hourly chart shows a clear picture of the Sterling rebounding at the end of the previous week from the consolidation trend's lower boundary and slowly making its way up towards the upper one this week. There is still one obstacle on the Cable's path, namely the area around 1.2250/70, which kept the pair at bay for more than week. Once this area is overcome, the pair will be expected to reach the 1.2330 mark.
Hourly chart
Traders mostly bullish
There are 66% of traders being long the Pound today (previously 68%), while 59% of all pending orders are to sell the British currency.
A similar situation is observed elsewhere. For example, 63% of positions open at OANDA are currently long. This is more than the share of shorts (37%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 63% of traders being long and 37% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect no major changes
By the end of the next three months traders expect the Cable to be higher than the level where it is now. While the current price is around 1.22, the average forecast for November 02 is 1.2226. Furthermore, the 1.18-1.20 interval is now the most popular one, having 19% of the votes. On the second place in terms of the votes are the 1.16-1.18 (13%) and the 1.20-1.22 (13%) intervals, followed also by the 1.32-1.34 with only 9% of the votes. Moreover, 69% all survey participants believe the Cable is to fall under 1.26.