Forex Market: GBP/USD daily trading forecast

Yesterday’s trade saw GBP/USD within the range of 1.5601-1.5746. The pair closed at 1.5637, losing 0.49% on a daily basis.

At 7:56 GMT today GBP/USD was up 0.14% for the day to trade at 1.5657. The pair touched a daily high at 1.5671.

Fundamentals

United Kingdom

Consumer inflation

The cost of living in the United Kingdom probably remained unchanged, with the annual rate of inflation being at 1.3% in November, according to the median estimate by experts. If so, this would be the eleventh consecutive month, when the annualized Consumer Price Index remained below the 2-percent inflation objective, set by the Bank of England. In October transport costs were up 0.5% year-on-year, following a 0.1% climb in September. Cost of recreation and culture rose 1%, up from a 0.7% gain in September, while prices of housing, water, electricity and gas soared 3.2% year-on-year. Prices of alcoholic beverages and tobacco increased at a faster 5.2% (4.9% in September) and the cost of restaurants and hotels went up slightly to 2.5% from 2.3% in the preceding month, according to the report by the Office for National Statistics. On the other hand, prices of food and beverages slipped at an annual rate of 1.4% in October, or the same rate as in September, while clothing and footwear costs were down 0.2%.

The CPI is the main measure of inflation in the UK for macroeconomic purposes and forms the basis of the inflation target set by the government. Every month about 120 000 samples are made, examining the change in prices of about 650 products. They represent the “market basket” of goods and services, on which the index is based.

Key categories in the consumer price index are Transport (accounting for 16.2% of the total weight) and Housing, Water, Electricity, Gas and Other fuels with a 14.4% share. Recreation and Culture accounts for 13.4%, Restaurants and Hotels – 11.4% and Food and Non-alcoholic Beverages – 11.2%. The CPI also encompasses Miscellaneous Goods and Services (9.6%), Clothing and Footwear (6.5%), Furniture, Household Equipment and Maintenance (6.1%). Alcoholic Beverages and Tobacco, Health, Communication and Education comprise the remaining 11.2% of the total weight.

The annualized core consumer price inflation probably remained steady at 1.5% in November. If so, this would be the third consecutive month, during which the rate remained at that level. It has also been the lowest core inflation since April 2009. The core CPI measures the change in prices of goods and services purchased by consumers, without taking into account volatile components such as food, energy products, alcohol and tobacco.

In case the annual CPI slowed down more than expected, thus, distancing from the inflation objective of 2.0%, this would certainly reduce the appeal of the sterling. The Office for National Statistics (ONS) will publish the official CPI report at 9:30 GMT.

Financial Stability Report

Released twice every year by the Bank of England and under the guidance of the interim Financial Policy Committee, the Financial Stability Report, reflects the Committees outlook assessment of the stability and resilience of the financial sector in the country at the time the report is prepared. This document also shows the policy actions that are to be taken in order to diminish risks to stability. A hawkish financial outlook by the Committee is usually pound positive, while a dovish view usually has a bearish effect on the national currency. The report is to be published at 10:30 GMT.

United States

Housing Starts and Building Permits

The number of housing starts in the United States probably increased to 1.025 million in November from the seasonally adjusted annual rate of 1.009 million during the prior month. Octobers figure has been influenced by a 15.5% drop in houses with 5 units or more. Single-family housing starts in October were at a rate of 696 000, or 4.2% above the revised figure of 668 000 in September. The October rate for units in buildings with five units or more was 300 000, according to data by the US Census Bureau.

Housing Starts represent a gauge to measure residential units, on which construction has already begun, every month. A start in construction is defined as the foundation laying of a building and it encompasses residential housing primarily.

The number of building permits in the country probably dropped to 1.047 million in November from an unrevised annual level of 1.080 million in October. The latter has been the highest number of permits in six and a half years. Single-family authorizations in October were at a rate of 640 000, or 1.4% above the revised number of 631 000 in September. Authorizations of units in buildings with five units or more were at a rate of 406 000 in October, according to the report by the Census Bureau.

Building permits are permits, issued in order to allow excavation. An increase in the number of building permits and housing starts usually occurs a few months after mortgage rates in the country have been reduced. Permits are not required in all regions of the United States. Building permits, as an indicator, provide information regarding demand in US housing market. In case a higher-than-anticipated number is reported, this will certainly support the greenback. The official housing data is due out at 13:30 GMT.

Manufacturing data by Markit – preliminary release

Manufacturing activity in the United States probably accelerated in December, with the corresponding preliminary Purchasing Managers Index coming in at a reading of 55.2. In November the final seasonally adjusted PMI stood at 54.8, which has been the lowest reading since January, when the indicator was reported at 53.7. Factory activity slowed for the third consecutive month to the lowest figure in ten months, as new orders and output sub-indexes declined.

According to Markits statement: “Volumes of new work received by U.S. manufacturers continued to increase at a solid pace during November, but the latest rise was the weakest since the start of the year. Anecdotal evidence suggested a greater degree of caution among clients and weaker sales to export markets. Although only modest, the latest data indicated that new business from abroad decreased at the fastest pace since June 2013.”

“The latest survey indicated that backlogs of work were broadly unchanged across the U.S. manufacturing sector, which ended a nine-month period of expansion. Despite reduced pressure on operating capacity, manufacturing job creation remained relatively strong in November. Moreover, the rate of employment growth accelerated since the previous month and was the second-fastest since January 2013.”

Values above the key level of 50.0 indicate optimism (expanding activity). Higher-than-expected PMI readings would certainly support the US dollar. The preliminary data by Markit Economics is due out at 14:45 GMT.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 1.5661. In case EUR/GBP manages to breach the first resistance level at 1.5722, it will probably continue up to test 1.5806. In case the second key resistance is broken, the pair will probably attempt to advance to 1.5867.

If EUR/GBP manages to breach the first key support at 1.5577, it will probably continue to slide and test 1.5516. With this second key support broken, the movement to the downside will probably continue to 1.5432.

The mid-Pivot levels for today are as follows: M1 – 1.5474, M2 – 1.5547, M3 – 1.5619, M4 – 1.5692, M5 – 1.5764, M6 – 1.5837.

In weekly terms, the central pivot point is at 1.5672. The three key resistance levels are as follows: R1 – 1.5806, R2 – 1.5891, R3 – 1.6025. The three key support levels are: S1 – 1.5587, S2 – 1.5453, S3 – 1.5368.