- The share of buy orders returned to its Monday's level of 52%
- Bulls now take up 65% of the market
- Immediate resistance is around 1.2780
- The closest support is around 1.2678
- Upcoming events: US Initial Jobless Claims, UK Manufacturing PMI, UK Goods Trade Balance, UK Industrial Production, US Average Hourly Earnings, US Non-Farm Employment Change, US Unemployment Rate, FOMC Members Fischer, Mester, George and Brainard Speeches
The UK's services sector, which accounts for more than 75% of the country's GDP, continued to grow in September after dropping sharply immediately after British public has voted to leave the European Union. The Final Markit/CIPS PMI services-sector index decreased to 52.6 in October from 52.9 noted during the previous month. The third-quarter reading showed the slowest pace since the fourth quarter of 2012 thus underlying concerns surrounding the outlook will continue as Brexit uncertainty continues. New business, in turn, rose at the fastest pace since February, although it was still below the longer-term average, with overseas client orders boosted by Sterling weakness. Meanwhile, the data comes after outstanding manufacturing and construction PMI readings earlier this week, signaling the economy may be regaining its momentum. Also, Prime Minister Theresa May has signaled she is going to start the formal exit procedure by the end of the first quarter of 2017, beginning a two-year negotiation period.
In the meantime, the GBP/USD is trading still above 1.2700 after dipping to fresh 31-year lows below this level early in Europe.
US Initial Jobless Claims is the only driver today
There is only one relevant event to influence the GBP/USD pair today, namely the US Initial Jobless Claims. It is a measure of the number of people filing first-time claims for state unemployment insurance. In other words, it provides a measure of strength in the labor market. A larger than expected number indicates weakness in this market, which influences the strength and direction of the US economy. However, on Friday attention should be paid to the UK Manufacturing Production, which measures the manufacturing output. Manufacturing Production is significant as a short-term indicator of the strength of the UK manufacturing activity that dominates a large part of total GDP. At the same time, the most important event from the US side will be the Nonfarm Payrolls. They present the number of new jobs created during the previous month, in all non-agricultural business. The monthly changes in payrolls can be extremely volatile, due to its high relation with economic policy decisions made by the Central Bank. The number is also subject to strong reviews in the upcoming months, and those reviews also tend to trigger volatility in the forex board. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish), although previous months reviews and the unemployment rate are as relevant as the headline figure, and therefore market's reaction depends on how the market assets them all. The Unemployment Rate also plays a huge role. It is a percentage that surges from dividing the number of unemployed workers by the total civilian labor force. It represents the percentage of people actively seeking employment and willing to work. Usually, as a higher rate is seen in recessionary economies, while on the contrary, a growing economy sees its unemployment rate decreasing. Therefore, a decrease of the figure is seen as positive for the USD, while an increase is seen as negative, although by itself, the number can't determine the markets move as it depends on the headline reading, namely the Nonfarm Payrolls.
GBP/USD attempts to remain above 1.27
A rather weak reading of ADP data yesterday caused the GBP/USD currency pair to erase all intraday losses and even inch slightly higher. As a result, the Cable managed to remain above the 1.27 major level and is now expected to edge higher for the second day. Even though technical indicators are unable to confirm the possibility of a rally, USD-pairs tend to turn in favour of other currencies ahead of NFP data, rather than the US Dollar itself. On the other hand, the Cable has little room for further appreciation, being that the nearest resistance rests only 30 pips above today's opening price. Consequently, risks of the exchange rate falling under 1.27 also persist.
Daily chart
Things did not go according to the forecast, as the Cable failed to edge below the 1.27 major level yesterday and, thus, reach the trend-line intersection at 1.2640. Nonetheless, trade remains within the borders of a descending channel pattern, where the exchange rate is likely to remain today. However, the pair could now refrain from falling below 1.26, as a longer-term channel's support line might provide sufficient support for a rebound.
Hourly chart
Traders remain undecided
Bulls now take up 65% of the market (previously 64%), while the share of buy orders returned to its Monday's level of 52%.
A different situation is observed elsewhere. For example, 71% of positions open at OANDA are currently long. This is more than the share of shorts (29%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 75% of traders being long and 25% 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 more or less at the same level where it is now. While the current price is around 1.30, the average forecast for January 06 is 1.3025. Interestingly enough, however, the 1.30-1.32 interval is not the most popular one, having only 13% of the votes. Most of the votes are concentrated in 1.28-1.30 (19%) intervals. Furthermore, 53% all survey participants believe the Cable is to fall below 1.30.