- The sell orders are in a majority, constituting 55% of commands
- There are now more bears in the SWFX market than there are bulls
- Traders are moderately bearish towards GBP/USD in the long term
- Upcoming events: UK Services PMI, US ADP Non-Farm Employment Change, ISM Non-Manufacturing PMI
Buoyed by positive economic data the British Pound outperformed most of its counterparts yesterday. The currency advanced 0.99% against the Aussie and 0.84% against the Greenback.
In January, the UK construction PMI rose, following a dramatic decline to the lowest level in 17 months in the previous month. The PMI expanded at a faster rate than expected amid higher confidence and improved order books. The construction PMI edged up to 59.1, beating expectations for a fall to 56.9, from 57.6 in December 2014. However, the latest PMI reading was the second-lowest since September 2013. All construction sub-sectors strengthened last month, but with increase rate being slower than the highs in each of the sectors in 2014. The residential buildings sector had the best performance, expanding continuously for two years in a row, whereas the civil engineering activity rebounded after plunging in December and commercial construction rose in January 2015. For the first time in three months optimism over the upcoming year increased. New work volumes increased as well, which was the fastest upturn for the last three months, while the job creations slid to the weakest level since the end of 2013. Employment in construction sector was suggested to be weak due to lower volumes of new work in the preceding months.
However, construction sector, which accounts for about 6% of UK economy, was hit hard by recession and global financial crisis, still has output close to 8% below its level in 2008.
UK services sector growth to accelerate
According to the consensus in the market, the Services PMI in the United Kingdom should grow from 55.8 to 56.6, which together with yesterday's Construction PMI can become a positive factor for the Sterling. Another risk event also concerns the tertiary sector, but in the United States, where the Institute for Supply Management is estimated to show further improvement in the economy. Meanwhile, the pace of hiring, as reported by the ADP, is expected to slow down, from 241 to 224K.
GBP/USD soars to the down-trend at 1.5180
Simon Smith, Chief Economist at FXPro, advises not overestimate bullish potential of the US Dollar in 2015. 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".
As for the Sterling itself, Charles Purdy, CEO of Smart Currency Exchange, sees weakness in the nearest future, arguing that "the UK election will count against Sterling" in terms of "higher levels of uncertainty". According to the analyst, GBP/USD is likely to fall to 1.46 by the end of March. However, in a year he expects the exchange rate to recover to 1.48, after the BoE hikes the interest rates in the second half of 2015.
Daily chart
Because of an upside surprise in fundamentals GBP/USD violated the accelerated down-trend before reaching the lower boundary of a bearish channel it has been forming since the beginning of the year. However, the pattern itself seems to remain intact, as the pair did not manage to rally through the resistance at 1.5180, meaning the near-term outlook for the Sterling is strongly bearish. The nearest significant support is thus at 1.51.
Hourly chart
Shorts exceed longs
There are now more bears in the SWFX market than there are bulls, though for now the gap is insignificant, merely four percentage points. The sell orders are in a majority as well, constituting 55% of the total number of commands set 100 pips from the spot.
At OANDA the relative amount of bulls decreased as well, but from 53 to 51%. However, SAXO Bank clients seem to have a different opinion with respect to the Cable, since 60% of open positions are long (59% yesterday).
Spreads (avg, pip) / Trading volume / Volatility
17% of traders see 1.50/1.48 in three months
At the same time, the near-term outlook, as shown by the survey among the FX Community members, is bullish. Despite the negative developments in the pair during the end of the January 26-30 week, the traders have become more positive towards the Cable, as 56% of all votes are for appreciation. The average prediction is now located at the 1.509 level.
According to rokasltu, the "rate seems to have found a good support just below the 1.50 level", adding that "there is potential for the rate to add around 100 pips". On the other hand, Jignesh is less optimistic regarding the Pound, saying that "the pair will continue to consolidate in this area [1.50] for the week towards the downside".