- Selling pressure is the dominant force — 60% of commands are placed to sell the Pound
- The distribution between the long and short positions is unchanged at 60 and 40%, respectively
- GBP/USD finds support at 1.52
- Upcoming events: UK Services PMI, US ISM Non-Manufacturing PMI, US Factory Orders
Activity in the British construction sector rose at the slowest pace in 17 months in December, but housebuilding remained robust, with residential construction enjoying the strongest year since at least 1997. The Markit/CIPS construction PMI fell to 57.6, compared with the 59.4 reading in November. While the pace of activity growth eased for the third consecutive month, this was still above the 50-mark threshold, which separates expansion from contraction. The three components of output included in the index pointed to diverging trends in the last month of the year. Housebuilding and commercial construction continued to increase at a solid clip, even though the pace was weaker than in the preceding month. Civil engineering, however, dropped slightly, stopping a 17-month stretch of continues growth.
Confidence in the construction sector remains strong, with 52% of survey participants expecting an increase in business activity in 2015, while only 13% predicted a contraction. New business volumes continued to climb in the reported month, but the rate of growth declined for the sixth consecutive month and was the slowest since June 2013. Job creation in the construction sector was slightly below the November level, while the rate of hiring remained above the long-term average.
Will Services PMI provide relief?
We are still looking for a bright spot in the UK economy, as the recent release have been largely disappointing. Markit, a provider of some of the world's most influential business surveys, is scheduled today to release the results of a poll conducted among the purchasing managers of the services sector. According to the consensus in the market, the reading should go from the previous 58.6 up to 58.9.
GBP/USD finds support at 1.52
Simon Smith, Chief Economist at FXPro, advises not overestiment bullish potential of the US Dollar. According to him, "we will see Dollar strength through the year, but it's going to be a very difficult year in terms of trends".
Jean-Francois Owczarczak, the director of Fingraphs.com, says "the Cable has been correcting strongly", and notes that "it's not an impulsive move yet, but could become such if it [GBP/USD] were to move below 1.55. According to him, there's an important support we're approaching. If it is violated, it could "open more potential to the downside".
Daily chart
GBP/USD seems to have stabilised after hitting the down-trend that connects the September and November lows. Accordingly, there is a high possibility of a bullish correction from 1.52 to 1.53, even though the technical studies do not favour appreciation of the Sterling. If the currency pair manages to gain a foothold above this resistance, then the rally will be able to extend to the upper boundary of the bearish channel at 1.56.
Hourly chart
Sentiment remains bullish, but most people plan to sell
The distribution between the long and short positions in the SWFX market is exactly the same as 24 hours ago — 60 and 40%, respectively. A majority of OANDA clients are also bullish - 58% of open positions are long, which is only 1 pp above the percentage of longs at SAXO Bank (57%).
As for the pending orders, for now the selling pressure is the dominant force — 60% of commands are placed to sell the Pound against the Dollar, suggesting a rebound will be difficult to develop given the current conditions.