- The share of sell orders inched up from 60 to 61%
- 61% of traders are long the Pound
- Immediate resistance is around 1.2590
- The closest support is circa 1.2440
- Upcoming events: UK Net Lending to Individuals, UK Mortgage Approvals, US Preliminary GDP, US CB Consumer Confidence, FOMC Members Dudley and Powell Speeches
The UK economy showed solid growth in the last quarter, as higher exports and consumer spending helped to offset the post-Brexit vote uncertainty, official data revealed on Friday. According to the Office for National Statistics' second estimate, the British economy expanded 0.5% in the Q3, in line with analysts' expectations. Business investment jumped 0.9% on a quarterly basis in the three months to September, surpassing the 0.6% rise market forecast. Britain's economy has so far performed much better than expected in the wake of the country's vote to leave the EU.
However, analysts suggest that challenges lie ahead, as higher inflation caused by the steep fall in the value of the British Pound is likely to squeeze consumer spending and increase cost pressures on business. Household spending increased 0.7% in the Q3, slightly below the prior quarter's level but still strong enough to boost the economy. Net trade contributed 0.7% to economic growth in the last quarter, the largest positive reading since the beginning of 2014, driven by higher exports amid the weak Sterling. Compared with the same period one year ago, the economy grew 2.3% in the Q3, meeting projections. Services output advanced 0.8%, while manufacturing and construction output dropped 0.9% and 1.1%, respectively.
Uneventful Monday
Monday is a quiet day in terms of fundamental data, but on Tuesday traders can pay attention to the UK Net Lending to Individuals. It is a monthly measure of growth rates, amounts outstanding and changes in total lending to individuals, divided into lending secured on dwellings and consumer credit. It shows a picture of whether or not consumers are willing to spend money. Later that day from the US side the GDP figure is to be released. The GDP shows the monetary value of all the goods, services and structures produced within a country in a given period of time. GDP is a gross measure of market activity, because it indicates the pace at which a country's economy is growing or decreasing. Another possible event will be the US CB Consumer Confidence, which captures the level of confidence that individuals have in economic activity. A high level of consumer confidence stimulates economic expansion, while a low level drives to economic downturn.
GBP/USD to retake 1.25
Last week was a good one for the Cable, as it continued its recovery after a sharp slump in the beginning of October. However, the 1.25 major level remained unconquered, but the GBP/USD currency pair has the potential to reclaim this area today. Technical indicators support this possibility, as they are now giving distinctly bullish signals. Meanwhile, the 55-day SMA, the weekly R1 and the Bollinger band form resistance around 1.26, where the Sterling is likely to struggle at posting more gains. Despite bullish signs, downside risks also persist, as the pair has been trading within the borders of a broadening rising wedge pattern for nearly two months now.
Daily chart
On the hourly chart some attempts of the Cable climbing over the 1.25 mark were seen made today, but the pair still ended up sliding down, at least for the moment. The 200-hour SMA could still provide sufficient support and trigger a rebound, thus, confirming the outlook of the daily chart.
Hourly chart
Traders mostly bullish
Bulls retreated again, as 61% of traders are now long the Pound (previously 63%). The share of sell orders inched up from 60 to 61%.
A similar situation is observed elsewhere. For example, 64% of positions open at OANDA are currently long. This is more than the share of shorts (36%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 62% of traders being long and 38% 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 higher than the level where it is now. While the current price is around 1.24, the average forecast for February 28 is 1.2382. Furthermore, the 1.18-1.20, the 1.24-1.26 and the 1.26-1.28 intervals are now the most popular ones, having 12% of the votes each. On the second place in terms of the votes are the 1.16-1.18 (11%) and the 1.20-1.22 (11%) intervals, followed also by the 1.14-1.16 and 1.28-1.30 intervals, both with only 9% of the votes. Moreover, 51% all survey participants believe the Cable is to fall above 1.24.