Friday’s trade saw GBP/USD within the range of 1.4147-1.4416. The pair closed at 1.4247, plunging 0.80% on a daily basis. It has been the 13th drop in the past 20 trading days. The daily low has been the lowest level since January 21st, when a low of 1.4079 was registered. In weekly terms, GBP/USD fell 0.13% last week to mark its fourth drop in the past five weeks. The pair lost 3.36% of its value in January, marking its third consecutive month of decline. Januarys rate of decrease has been the steepest since March 2015, when GBP/USD depreciated 3.99%.
At 7:41 GMT today GBP/USD was edging up 0.09% for the day to trade at 1.4258. The pair touched a daily high at 1.4268 at 5:40 GMT, undershooting the daily R1 level, and a daily low at 1.4228 during the early phase of the Asian trading session.
On Monday GBP/USD trading may be influenced by the following macroeconomic reports as listed below.
Fundamentals
Manufacturing PMI by Markit/CIPS
Activity in United Kingdom’s sector of manufacturing probably increased at a slower pace in January compared to a month ago, with the corresponding Purchasing Managers Index coming in at a reading of 51.8, according to the median forecast by experts, down from 51.9 in December. If expectations were met, January would be the 33rd consecutive month, when the PMI stood above the key level of 50.0, but yet, it would also be the lowest reading since September 2015 (51.5).
The index is based on a survey, encompassing managers of companies, that operate in sectors such as manufacturing, mining, utilities. They are asked about their estimate in regard to current business conditions in the sector in terms of new orders, output, employment, demand in the future. Values above 50.0 signify that respondents are rather optimists about business conditions than pessimists.
In case the PMI slowed down more than projected in January, this would have a strong bearish effect on the sterling. The Chartered Institute of Purchasing and Supply (CIPS) is expected to release the official PMI reading at 9:30 GMT.
Consumer Lending, Mortgage Approvals
Lending to consumers in the United Kingdom probably shrank to GBP 1.300 billion in December from GBP 1.476 billion in November. The latter has been the highest amount borrowed by individuals since February 2008, when a figure of GBP 2.3 billion was reported. This indicator represents borrowing by the UK personal sector (individuals only) to fund current expenditures on goods and services, which are a driving force behind economic growth.
What we should stress on here is the following distinction on how this indicator is to be ”read” in different macroeconomic contexts. Within a booming economy, excessively high levels of consumer lending may be taken as an indication that economy itself is set to overheat. It is so, because individuals tend to borrow money in order to live beyond their means. Within a sluggish economy, however, in case lending to individuals expanded more than projected, this would usually have a moderate bullish effect on the sterling, and vice versa. Bank of England (BoE) is to release the official numbers at 9:30 GMT.
At the same time, the number of mortgage approvals in the United Kingdom probably dropped to 69 500 in December, according to experts’ expectations, from 70 410 in November. The latter has been the highest number of mortgages approved since August 2015, when a level of 71 030 was reported. Mortgage approvals are considered as a leading indicator, reflecting the health of the country’s housing market. In case the number of mortgages approved increased more than anticipated, this would imply potentially higher demand in the nations housing sector and, respectively, a positive impulse for overall economy. However, a larger-than-anticipated drop in mortgages would have a moderate bearish effect on the national currency. Bank of England will release the official data at 9:30 GMT.
United States
Personal Spending, Personal Income
Personal spending in the United States probably rose for an 8th straight month in December, up 0.1%, according to market expectations, while personal income was probably up for a 9th consecutive month in December, increasing at a monthly rate of 0.2%. Consumer spending, which accounts for over two thirds of the nations GDP, rose 0.3% in December, or at the fastest rate since August 2015.
At the same time, personal income increased 0.3% during the same month, while disposable personal income (DPI) rose USD 34.5 billion (or 0.3% as well). Private wages and salaries were up by USD 34.4 billion in November, compared to an increase by USD 45.7 billion in the prior month. Government wages and salaries were USD 2.8 billion higher in November, compared to an increase by USD 1.5 billion in October.
Higher-than-expected rates of increase imply good employment conditions and, therefore, are dollar positive. The Bureau of Economic Analysis is to publish the official figures at 13:30 GMT.
Manufacturing PMI by Markit – final reading
The final estimate of the Manufacturing Purchasing Managers Index for January probably confirmed the flash estimate of 52.7, which was reported on January 22nd. In December the final seasonally adjusted PMI stood at 51.2, inching down from a preliminary value of 51.3.
According to the preliminary report by Markit, ”…the pace of expansion was comfortably above the 26-month low recorded in December. Survey respondents mainly commented on higher output levels in response to positive new business trends and expectations of improving domestic demand over the months ahead.”
”Volumes of new work strengthened in January, after coming close to stagnation at the end of 2015. The latest increase in new orders was the fastest for three months. However, new export sales continued to rise at only a marginal pace, which manufacturers generally linked to the strong dollar. Companies that reported an overall upturn in new work mostly cited improving domestic economic conditions. The main exception to the wider trend was among manufacturers facing cutbacks in new orders from clients in the oil and gas sector”, Markit stated.
Values above the key level of 50.0 indicate optimism (expanding activity). In case the final PMI for January confirmed or came above the preliminary reading, this would cause a moderate bullish impact on the US dollar. The final reading is due out at 14:45 GMT.
Manufacturing PMI by the ISM
Activity in United States’ manufacturing sector probably improved in January, with the corresponding manufacturing PMI coming in at a reading of 48.5, according to expectations, up from 48.2 in December. The latter has been the lowest PMI reading since June 2009, when the gauge was reported at 44.8.
The New Orders Index came in at 49.2 in December, up from 48.9 in November. The sub-gauge of production was reported at 49.8, advancing from 49.2 in November. The index of employment slid to a value of 48.1 in December from 51.3 in the preceding month. The gauge of prices was at 33.5 in December, down from 35.5 in November, which suggested lower prices of raw materials for a 14th month in a row. In December, 6 manufacturing industries reported growth, 10 reported contraction and 2 registered no change in conditions, according to the report by the Institute for Supply Management (ISM).
In case the manufacturing PMI improved more than anticipated in January, this would have a moderate-to-strong bullish effect on the US dollar. The ISM is to release the official index reading at 15:00 GMT.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for GBP/USD are presented as follows:
R1 – 1.4272
R2 – 1.4296
R3 (range resistance) – 1.4321
R4 (range breakout) – 1.4395
S1 – 1.4222
S2 – 1.4198
S3 (range support) – 1.4173
S4 (range breakout) – 1.4099
By using the traditional method of calculation, the weekly pivot levels for GBP/USD are presented as follows:
Central Pivot Point – 1.4270
R1 – 1.4393
R2 – 1.4539
R3 – 1.4662
S1 – 1.4124
S2 – 1.4001
S3 – 1.3855
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