- The portion of orders to sell the British currency increased from 49 to 57%
- Bulls take up 59% of the market
- Immediate resistance is around 1.24
- The closest support is at 1.2377
- Upcoming Events: UK Manufacturing PMI, UK Net Lending to Individuals, US Core PCE Price Index, US Personal Spending & Income, US Manufacturing PMI, US Beige Book, US Crude Oil Inventories
The US economy grew less than expected in December quarter even in spite of higher consumer spending observed in the reported period. Figures released on Tuesday showed the US economy grew at an annualised pace of 1.9% in the Q4, following a strong 3.5% reading registered in the preceding quarter and falling behind analysts' expectations for a 2.1% rise. In the report, the Commerce Department highlighted that the economic growth was mainly boosted by consumer spending that was revised to 3.0% from 2.5% reported previously. With household spending accounting for no less than 70% of the American economic activity, analysts around the world remained optimistic on the overall growth in the country in the months ahead. Furthermore, the report revealed that the surge in purchases by consumers in the final quarter of 2016 was mainly driven by higher sales of new cars and trucks.
Apart from that, Americans were seen to have spent more on health care. On balance, inventory investment was revised down to $46.2B from $48.7B, while spending on equipment rose a more modest 1.9% instead of 3.1% originally estimated. Moreover, there were changes in trade figures, with imports climbing 8.5% along with a sharp 4.0% decline in observed in exports.
A number of US data are due
From the UK side attention should be paid to the Manufacturing PMI, which captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the Manufacturing PMI is an important indicator of business conditions and the overall economic condition in the UK. From the US side, also the Manufacturing PMI is due, but additionally focus should be on the Core PCE Price Index. It is an average amount of money that consumers spend in a month. "Core" excludes seasonally volatile products, such as food and energy, in order to capture an accurate calculation of the expenditure. It is a significant indicator of inflation. Furthermore, the Personal Spending is another important event, as it measure purchases of goods and services by households and by non-profit institutions that serve households from private business. In addition to that, the Personal Income measures the total income received by individuals, from all sources including wages and salaries, interest, dividends, rent, workers' compensation, proprietors' earnings, and transfer payments. This figure can provide insight on the US employment situation. Finally, the US Beige Book. It report on the current US economic situation. Through interviews with key business contacts, economists, market experts, and other sources are gathered by each of the 12 Federal Reserve Districts. The survey gives a picture of the overall US economic growth.
GBP/USD: key support broken, weakness expected
Buck's strength caused the Cable to slide further down, breaching the strong demand cluster at 1.24. From this point on more, more bearish momentum is likely to follow, as the 55-day SMA pierced the 100-day one on Monday, providing a signal to sell the Pound. The breach of the key support cluster also indicates that the Sterling could relatively soon retest the 1.20 mark. A drop that low is yet to occur, but today trade is expected to close circa 1.2320, while being supported by the weekly S2 slightly lower. Meanwhile, technical indicators retain mixed signals, unable to confirm the possibility of the negative outcome.
Daily chart
Another retest of the 200-hour SMA was too successful, as the Cable made a sharp U-turn, causing the key support area to be pierced. The next target now is the current 2017 low of 1.2347, which the pair nearly reached today. A drop below this area is likely to open the door to new lows, with the next target being the 1.2250 level.
Hourly chart
Traders mostly bullish
Bulls gave in again, as they now take up 59% of the market, compared to 60% on Tuesday. At the same time, the portion of orders to sell the British currency increased from 49 to 57%.
A slightly more optimistic situation is observed elsewhere. For example, 61% of positions open at OANDA are currently long. This is more than the share of shorts (39%), barely sufficient for the sentiment to be called bullish. Meanwhile, sentiment at Saxo Bank is also bullish, with 62% of traders now being long and the other 38% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect the Cable to keep falling
By the end of the next three months traders expect the Cable to rise above the 1.22 major level, as 55% of survey participants believe so. While the current price is around 1.24, the average forecast for June 01 is 1.2397. The 1.20-1.22 interval is now the most popular price interval, having 21% of the votes, while on the second place is the 1.28-1.30 price range, with 17% of poll participants choosing it. Furthermore, the 1.16-1.18 and the 1.18-1.20 intervals were each chosen by 14% of the voters.