- The share of buy orders surged from 43 to 55%
- 65% of all open positions are long
- Main resistance is around 1.4270
- The nearest support the up-trend at 1.4200
- 68% of traders reckon GBP/USD will be at 1.44 or lower in three months
- Upcoming events: UK Construction PMI, US Factory Orders, US Labor Market Conditions Index
Poor UK Manufacturing PMI on Friday caused the Sterling to weaken across the board even over the weekend. The Pound suffered the most against the Japanese Yen, having fallen 1.71% against it, followed by a 1.32% decline against the Swissie, 1.18% versus the Aussie and 1.05% versus the Euro. At the same time, the Cable dropped 0.93%, while against the remaining commodity currencies, the British Pound edged 0.89% and 0.84% lower, namely against the Loonie and the Kiwi, respectively.
Britain's manufacturing activity increased less than expected in March, underscoring the uneven nature of the economy as the global slowdown undermines exports. According to Markit Economics, manufacturing PMI climbed to 51 last month, up from 50.8 in February. That meant the average for the first quarter of the year equalled the lowest level since 2013, Markit reported. Manufacturers continued to rely on the domestic market for new business in the reported month as factories reported that weaker global economic growth dented new work from key trading partners including the US and Europe. An index of employment also declined for a third straight month, with investment-goods firms seeing the sharpest cuts.
The UK's Office for Budget Responsibility lowered its annual GDP outlook for this year by four percentage points to 2%. Growth for 2017 was also revised down to 2.2% from 2.5%. The OBR also cut the outlook for inflation, expecting the annual rate of CPI at just 0.7% for 2016. Inflation is then seen climbing to 1.6% in 2017, compared to the 1.8% estimated before, and below the official target of 2%. The OBR's forecast is based on the assumption that the UK remains a member of the EU after the June 23 referendum, meaning that a Brexit could depress growth projections even further.
UK Construction PMI and US Factory Orders
There are two relevant economic data releases to influence the Cable and are scheduled for Monday. The first one is the UK Construction PMI. PMI Construction, released by the Chartered Institute of Purchasing & Supply and Markit Economics, 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. The second event is the US Factory Orders; the Factory orders, released by the US Census Bureau, is a measure of the total orders of durable and non-durable goods such as shipments (sales), inventories and orders at the manufacturing level which can offer insight into inflation and growth in the manufacturing sector.
GBP/USD risks falling back under 1.42
Last Friday the GBP/USD currency pair declined more than anticipated, having pierced the immediate support cluster and put the short-term up-trend to the test. The Cable is now expected to rebound from the mentioned support line, which is located on top of the 1.42 major level. However, the rally is likely to be short-lived, unless the Sterling manages to climb over a tough supply area around 1.4270, represented by the weekly and the monthly PPs, the 20 and the 55-day SMAs. On the other hand, in case the five-week up-trend fails to cause a rebound, the next target would then be the weekly S1 and the Bollinger band, both located around 1.4075.
Daily chart
The British currency weakened against the US Dollar so much on Friday, that it caused a breakout from the recently-formed descending channel. The pair now remains above the 1.42 mark, but with the 200-hour SMA keeping the exchange rate at bay.
Hourly chart
Sentiment turns bullish
Market sentiment is strongly bullish, as 65% of all open positions are long (previously 59%). The share of buy orders surged from 43 to 55%.
Concerning the sentiment of other market participants, OANDA still has a bullish sentiment of 53%, compared to 51% on Friday. Meanwhile, the sentiment at Saxo Bank worsened over the weekend, with bears now outnumbering the bulls by 4% points, compared to 2% on Friday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.44 in three months
The majority of traders (65%) believe the British currency is to cost 1.44 or less dollars after a three-month period. The most popular price interval was selected by 19% of the voters, namely the 1.38-1.40 one, while the second most popular choices imply that the Pound is to cost either between 1.34 and 1.36 dollars, or between 1.42 and 1.44 dollars, or even between 1.46 and 1.48 dollars in three months, all three chosen by 12% of the surveyed. At the same time, the mean forecast for July 04 is 1.419.