- Sell orders exceed the buy ones: 61% versus 39%
- Still no consensus among SWFX traders: 46% are long and 54% are short
- Medium-term gains to be limited by 1.48
- Major support circa 1.43
- 54% of traders reckon GBP/USD will be at 1.46 or lower in three months
- Upcoming events: UK Manufacturing PMI (May), US ISM Manufacturing PMI (May)
There were no significant reports on the UK economy yesterday, but the Pound fell precipitously on Tuesday against its major counterparts amid the latest rolls showing more people willing to leave the EU than to stay. The largest loss was recorded against the New Zealand Dollar, which was boosted by improving business confidence. At the same time, the smallest decline was against the Canadian Dollar, which was weighed upon by disappointing GDP figures.
British economic growth lost steam in the first quarter on the background of unexpected contraction in business investment. The second reading of Britain's first-quarter GDP figures confirmed the loss of momentum in the economic recovery. The Office of National Statistics announced that the economy grew 0.4% in the first quarter, slower than the 0.6% pace in the last three months of 2015, the same as the first estimate given in April. From a year earlier GDP expanded 2%, which was revised down from last month's first reading of 2.1%, the ONS said. Moreover, business investment missed with a fall of 0.5% against 3.2% expected. Also the BBA's mortgage approvals did not meet expectations by sliding to 40.1K against 44.8K predicted.
In addition, a separate report showed that out of the four main components on the output side of GDP, production and construction contracted from the previous quarter, while agriculture and services activity increased, according to a breakdown of the first quarter's reading. Production shrank 0.4% and construction fell by 1%, the ONS said. Manufacturing, the largest component within production, dropped 0.4%. Services, which account for a massive 79% of GDP, increased 0.6%, posting a 13th consecutive quarter of growth. The expansion was less than the fourth quarter's 0.8% pace.
UK manufacturing industry contraction is expected to decelerate
Today's data has the potential either to aggravate or to negate yesterday's poor performance of the Sterling. The UK manufacturing PMI report at 8:30 AM GMT is to show whether the negative tendency that has been observed since last year's November still persists or if there are reasons to be optimistic. As for the Cable, it will also be driven by the US manufacturing PMI report at 2:00 PM GMT, and according to the estimates, the industry should expand, albeit at a slower pace than a month earlier.
GBP/USD at risk of forming double top
While trading within a rather poorly defined bullish channel (since late February), the Cable appears to be forming a double top with peaks on May 2 and May 25. Accordingly, if the price closes under the wide but at the same time dense demand area between 1.4344 and 1.4288, which consists of the neck-line, 100-day SMA and the lower bound of the channel, the new target will be the April's lows, namely 1.4050. Meanwhile, even if the Sterling does rise from 1.4344/1.4288, the gains are to be limited by the massive resistance circa 1.48 dollars.
Daily chart
Yesterday, the currency pair fell through the 200-hour SMA, although the first few attempts proved to be unsuccessful. This suggests that the next likely action of GBP/USD is to launch an attack on 1.4380, a test of which will be critical in defining pair's behaviour this week.
Hourly chart
Market preserves neutrality
There is still no consensus among SWFX traders with respect to the British Pound, being that 46% of them are long the currency and 54% are short. However, the sell orders exceed the buy ones: 61% versus 39%.
Positioning elsewhere is also without any noticeable change. Traders both at OANDA and at Saxo Bank remain almost equally divided between the bulls and bears. In the first case, 52% of traders are holding long positions. This percentage is slightly lower at Saxo Bank, where 45% of open positions are long.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.46 in three months
The majority of traders (54%) believe the British currency is to cost 1.46 or less dollars after a three-month period. The most popular price interval was selected by slightly less than a quarter (21%) of the voters, namely the 1.44-1.46 one, while the second most popular choice implies that the Sterling is to cost between 1.42 and 1.44 dollars in three months, chosen by 12% of the surveyed. At the same time, the mean forecast for Aug 27 is 1.4634.
Dukascopy Community members are mostly bullish on GBP/USD this week - 73% of them expect appreciation of the Pound. However, it must be noted that they do not see the price to strengthen a lot - up to only 1.4620.
Many of the surveyed members mentioned 'brexit' polls as the major driver of the currency pair. For example, one of our regular participants, Jignesh, said that "nearing the EU referendum, votes are coming in favour of a stay, which has the markets reprising the GBP/USD pair". To strengthen his argument, Jignesh noted that "volatility may increase in the week, but the pair stays firm, and with a weekly bullish engulfing candle to start the week, the downside should be protected".
On the other side, megajorko is bearish on the Cable, justifying his position by saying that the pair "made a surprising spike, but this was a start of the new bearish momentum".