Yesterday’s trade saw GBP/USD within the range of 1.5357-1.5448. The pair closed at 1.5421, ticking up 0.03% on a daily basis. The daily low has been the lowest level since October 30th, when the cross registered a low of 1.5302.
At 8:35 GMT today GBP/USD was up 0.05% for the day to trade at 1.5429. The pair touched a daily high at 1.5437 at 7:45 GMT, testing the daily R2 level.
On Wednesday GBP/USD trading may be influenced by a number of macroeconomic reports and other events as listed below.
Fundamentals
United Kingdom
Services PMI by Markit/CIPS
Activity in United Kingdom’s sector of services probably increased in October, with the corresponding PMI coming in at 54.5, up from 53.3 in the prior month. The latter has been the lowest PMI value since April 2013, when a reading of 52.9 was reported. If so, October would be the 34th consecutive month, when the gauge inhabited the area above 50.0. The index is based on a survey, encompassing managers of companies, that operate in sectors such as transportation, communications, IT, financial intermediation, tourism. They are asked about their estimate regarding current business conditions (new orders, output, employment, demand in the future). Values above the key level of 50.0 signify predominant optimism (expansion in general activity). A larger-than-projected improvement in the index would certainly boost the appeal of the pound. The Chartered Institute of Purchasing and Supply (CIPS) is to release the official reading at 9:30 GMT.
United States
Change in employment by ADP
Employers in the US non-farm private sector probably added 181 000 new jobs during October, according to the median estimate by experts, following 200 000 new positions added in September. If so, this would be the lowest gain in jobs since April 2015, when 169 000 positions were added. The employment report by Automated Data Processing Inc. (ADP) is based on data that encompasses 400 000 – 500 000 companies employing over 24 million people, working in the 19 major sectors of the economy. The ADP employment change indicator is calculated in accordance with the same methodology, which the Bureau of Labor Statistics (BLS) uses. Published two days ahead of the governments employment statistics, this report is used by traders as a reliable predictor of the official non-farm payrolls data. Creation of jobs has a direct link to consumer spending, while the latter is a major driving force behind economic growth. Therefore, in case new jobs growth came above expectations, this would have a moderate-to-strong bullish effect on the US dollar. The official figure is scheduled to be released at 13:15 GMT.
Balance of trade
The deficit on US balance of trade probably narrowed to USD 43.20 billion in September, according to market expectations. In August the trade gap was reported at USD 48.33 billion, which has been the largest one since March 2015, when a deficit of USD 51.37 billion was registered.
Total exports shrank almost 2% to reach USD 185.09 billion in August due to unfavorable exchange rate of the US dollar and weak external demand. Exports of goods dropped 4.1 billion to reach USD 124.5 billion. Within the category, exports of industrial supplies and materials fell USD 2.2 billion, fuel oil exports shrank by USD 0.6 billion, plastic materials exports lowered by USD 0.2 billion and crude oil exports went down USD 0.2 billion during the month.
Total imports, at the same time, expanded 1.2% to USD 233.42 billion in August, driven by higher demand for consumer goods. Imports of goods rose by USD 2.5 billion to reach USD 192.4 billion in August. Within the category, consumer goods imports were up USD 4.0 billion, imports of cell phones and other household goods went up USD 2.1 billion, while those of toys, games and sporting goods increased by USD 0.3 billion during the period.
US exports to Mexico shrank by USD 1.5 billion, while shipments to the European Union declined by USD 0.5 billion. At the same time, purchases from China went up 3%.
In case the trade balance deficit contracted more than projected in September, this would have a strong bullish effect on the US dollar, because of the positive implications for the nations Gross Domestic Product. The official trade data by the Bureau of Economic Analysis is due out at 13:30 GMT.
ISM Non-manufacturing PMI
Activity in United States’ sector of services probably improved in October, with the corresponding non-manufacturing PMI coming in at a reading of 57.1, according to the median forecast by experts, up from 56.9 in September. The latter has been the lowest PMI reading since June, when a level of 56.0 was reported. If expectations were met, October would be the 70th consecutive month, when the gauge stood in the area above 50.0. The PMI is a compound index, based on the values of four equally-weighted components, which comprise it. These sub-indexes reflect seasonally adjusted new orders, seasonally adjusted employment, seasonally adjusted business activity and supplier deliveries.
The New Orders Index stood at 56.7 in September, down from a reading of 63.4 in the prior month. The Employment Index advanced to 58.3 in September from 56.0 in August, while marking growth for the 19th month in a row, according to data by the Institute for Supply Management (ISM). The Prices Index slid to 48.4 in September from 50.8 in August, which indicated prices declined in September for the first time since February 2015. The Non-Manufacturing Business Activity Index fell to 60.2 in September from 63.9 in August, indicating growth for a 74th straight month.
Among the 17 services industries, 13 reported growth in September.
In case the PMI showed a larger-than-anticipated improvement in October, this would have a moderate bullish effect on the US dollar. The ISM is to release the official numbers at 15:00 GMT.
Bond Yield Spread
The yield on UK 2-year government bonds went as high as 0.712% on November 3rd, or the highest level since September 17th (0.731%), after which it closed at the exact same level to add 6.4 basis points (0.064 percentage point) compared to November 2nd, while marking a second trading day of gains in a row.
The yield on US 2-year government bonds climbed as high as 0.911% on November 3rd, or the highest level in at least ten months, after which it closed at 0.770% to add 1.3 basis points (0.013 percentage point) compared to November 2nd, while marking a second trading day of gains in a row.
The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, shrank to 0.058% on November 3rd from 0.109% on November 2nd. The November 3rd yield spread has been the lowest one since October 20th, when the difference was 0.055%.
Meanwhile, the yield on UK 10-year government bonds soared as high as 1.991% on November 3rd, or the highest level since August 27th (2.007%), after which it slid to 1.987% at the close to add 4.3 basis points (0.043 percentage point) compared to November 2nd, while marking a second straight trading day of increase.
The yield on US 10-year government bonds climbed as high as 2.225% on November 3rd, or the highest level since September 17th (2.298%), after which it slipped to 2.211% at the close to add 3.5 basis points (0.035 percentage point) compared to November 2nd, while marking a second consecutive trading day of gains.
The spread between 10-year US and 10-year UK bond yields shrank to 0.224% on November 3rd from 0.232% on November 2nd. The November 3rd yield difference has been the lowest one since October 30th, when the spread was 0.220%.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for GBP/USD are presented as follows:
R1 – 1.5429
R2 – 1.5438
R3 (range resistance) – 1.5446
R4 (range breakout) – 1.5471
S1 – 1.5413
S2 – 1.5404
S3 (range support) – 1.5396
S4 (range breakout) – 1.5371
By using the traditional method of calculation, the weekly pivot levels for GBP/USD are presented as follows:
Central Pivot Point – 1.5379
R1 – 1.5518
R2 – 1.5607
R3 – 1.5746
S1 – 1.5290
S2 – 1.5151
S3 – 1.5062
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