- 51% of all orders are now to acquire the Pound
- The share of longs still accounts for 40% of the market
- 12% of traders expect the Pound to cost either between 1.48-1.50 or 1.52-1.54 dollars after a three month period
- Nearest support lies around 1.5139, represented by the monthly PP, while closest resistance rests at 1.5252, namely the weekly PP
- Upcoming events: US Factory orders, FOMC Member Evans Speech
The Sterling was one of the worst performers last Friday, as it declined against most major peers. Heavy losses of 1.33%, 1.32% and 1.15% were registered against the Swiss Franc, the Greenback and the Euro, respectively. The Pound also plunged 0.65% versus the Aussie, 0.67% versus the Loonie and 0.69% versus the Yen. The Kiwi had the most trouble, as it added only 0.24% against the British Pound.
Activity growth in the UK factories unexpectedly slowed in April, as the strong Sterling undermined demand for British goods overseas. The UK manufacturing PMI declined to 51.9, down from 54.0 in the preceding month, intensifying fears about the weakness of economic recovery in the country. New export orders fell for the fifth time in seven months, as the Pound has gained 7% this year versus the Euro, the currency of the UK's top trading partner. The index of new orders slid to 52.9, the lowest level since September. The UK manufacturing PMI is one of the last economic reports before the May 7 general election, where voter opinion polls show neither main party will gain an outright majority. Besides, the survey of activity will sap hopes that the UK economy will fare better in the second quarter. The nation's economy expanded just 0.3% in the first quarter, the slowest pace since 2012, as industrial production and construction both contracted.
Total industrial production in the UK fell below market expectations in February, due to a sharp decrease in mining and quarrying, while oil and gas extraction experienced the biggest year-on-year fall in 18 months. However, manufacturing performed steadily, increasing 0.4% between January and February, with rises in seven of the 13 manufacturing sub-sectors.
Francesca Panelli an analyst from Oxford Analytica, gives her opinion on the overall health of the UK. She said that "uncertainty related to the upcoming UK election may weigh down the services sector, because it's a very sensitive sector to political development." Francesca expects the UK economic growth to pick up later in the year. She elaborated that "the slowdown in services should prove transitory, we had better evidence from higher frequency PMI over the first quarter of the year, and so I think momentum could improve ahead."
Jamie Jemmeson, head of trading at Global Reach Partners, talks about the upcoming elections in the UK. He says that the UK is sailing into murky waters right now, with no clear definition of what is going to happen next. Jamie adds that this is also going to lead to more Sterling volatility, so the investor has to be cautious.
He also gave his prospects on the effect the elections might have on the British currency: "I think that generally in terms of you looking at Sterling volatility, a Tory Government would be more positive for the Pound." He still mentioned that "Generally, if you look at historically how the Pound has re-answered, it prefers a Tory Government."
US Factory Orders
In the UK there is a bank holiday this Monday, which leaves us with only US data to look at. The number of Factory Orders in the US is expected to increase for the second month in a row, thus strengthening the US Dollar against the Sterling. Nonetheless, Charles Evans, president of the Fed of Chicago, is likely to provide some insight on when the Fed is planning to hike interest rates.
David Starkey, market analyst from Cambridge Mercentile, said that the BoE is most likely going to leave the rates unchanged. However, he also mentioned that "there is certainly a bit of dissent amongst the BoE, their chief economist suggested that there could be room for a cut if inflation continues to track negative, while Carney has openly and publicly suggested that the next move is going to be a hike." The analyst also gives his prospects for the near future, saying that "dissent is probably good, the BoE is going to be analysing the situation closely, the majority of the members still lean towards a hike, one descending voice does not suggest that it is going to be a cut in the near term."
GBP/USD sets eyes on 1.50
The Sterling failed to meet expectations, as it suffered heavy losses on Friday, amid weak fundamentals. The initial support at 1.53 was pierced, and the Cable even fell deeper down under 1.52. Ultimately, the GBP/USD pair stabilised at 1.5134, just under the monthly PP. Further weakness of the Pound is anticipated today. Several support levels lie on the way, but a slump beyond 1.50 psychological level is unlikely, as it is bolstered by the weekly S1. Meanwhile, technical studies are suggesting a surge, as they are distinctly bullish today.
Daily chart
The fall towards 1.52 (and beyond) occurred earlier than we anticipated. The GBP/USD pair bounced back from the 1.54 psychological level and the support trend-line was pierced on Friday, following with a 272-pip drop. Even though the Cable looks like is regaining momentum, those are considered to be shallow gains, a minor setback, as further weakness of the Sterling is expected today.
Hourly chart
Bearish market sentiment unchanged
Market sentiment remained unchanged, with the share of longs still accounting for 40% of the market. The number of buy orders is now the in the majority, as 51% of them are to acquire the Pound.
SAXO Group traders' sentiment remains bearish at 63% (previously 68%). OANDA traders' outlook towards the Cable slightly improved, but with bears still prevailing over bulls, as 48% of all positions are now long.
Spreads (avg, pip) / Trading volume / Volatility
12% of traders expect the Pound to cost either between 1.48-1.50 or 1.52-1.54 dollars after a three month period
The mean forecast for August 4 is 1.5032, while the majority (51%) of survey participants expect the Sterling to cost more than 1.50 dollars in three months. The most popular price intervals are 1.48-1.50 and 1.52-1.54, both chosen by 12% of the surveyed. The second popular choice was the 1.44-1.46 price range, selected by 11% of the voters.