Forex Market: GBP/USD daily trading outlook

Yesterday’s trade saw GBP/USD within the range of 1.3126-1.3488. The pair closed at 1.3226, plummeting 3.32% compared to Fridays close. It has been the 153rd drop in the past 281 trading days and also a second consecutive one. The cross has depreciated by 11.36% in the past two trading days, which has been the sharpest two-day rate of decline on record. The daily low has been the lowest level since July 1985. The major pair has fallen 8.27% so far in June, following a 0.92% drop in the prior month.

At 6:34 GMT today GBP/USD was up 0.56% on the day to trade at 1.3300. The pair touched a daily high at 1.3336 during the mid phase of the Asian trading session, overshooting the range resistance level (R3), and a daily low at 1.3205 during early Asian trade.

On Tuesday GBP/USD trading may be influenced by the following macroeconomic reports as listed below.

Fundamentals

United States

Gross Domestic Product – final estimate

The final estimate of the US Gross Domestic Product probably pointed to an annualized rate of growth of 1.0% in the first quarter of 2016. If so, it would exceed the 2nd GDP estimate, reported on May 27th, pointing to a 0.8% growth. The flash estimate revealed a 0.5% surge in Q1.

According to the May 27th report, personal consumption expenditure (PCE) added 1.29 percentage points to growth, up from 1.27 percentage point in the preliminary estimate, while rising at an annualized 1.9% in Q1. Fixed investment subtracted 0.25 percentage points from growth (-0.27% in the preliminary estimate), while shrinking 1.5% during the period. Non-residential investment decreased 6.2% in Q1, accelerating from a 5.9% decline in the preliminary estimate, while residential investment expanded 17.1%, accelerating from a 14.8% surge in the preliminary report.

Private inventories subtracted 0.20 percentage points from US growth in Q1 2016, as business entities accumulated inventories at the amount of USD 69.6 billion compared to USD 60.9 billion, as reported previously.

International trade subtracted 0.21 percentage points from growth in Q1 compared to -0.34 percentage points in the preliminary report. US exports contracted 2.0% in the first quarter of 2016 compared to a 2.6% decline in the preliminary release, while US imports fell 0.2% during the period compared to a 0.2% surge reported previously.

In case the final GDP met or even exceeded market expectations in Q1, this would certainly heighten the appeal of the US dollar. The official report is due out at 12:30 GMT.

S&P/Case-Schiller Home Price Index

At 13:00 GMT Standard & Poors/Case-Schiller will report on the performance of their House Price Index, which measures the change in values of single-family homes in 20 metropolitan areas across the United States. The report serves as a gauge of the US housing markets health. According to the median estimate by experts, home prices in the 20 areas probably rose 5.5% in April compared to April 2015, following a 5.4% surge in March. If expectations were met, Aprils rate of increase would be the sharpest one since January, when home values climbed 5.7% year-on-year. Within a recovering economy, a sharper-than-projected gain in prices will usually have a limited-to-moderate bullish effect on the local currency.

Consumer Confidence Index by the Conference Board

Confidence among consumers in the United States probably improved in June, with the corresponding index coming in at a reading of 93.3, according to market expectations. In May the gauge was reported at 92.6, or the lowest level since February.

This indicator measures the level of individuals confidence in the US economic development. It is considered as a leading indicator, as it gives an early insight into consumer spending, which accounts for a major part of the nations GDP.

In case the index came above expectations, this would have a strong bullish effect on the US dollar, as higher confidence suggests a greater willingness to spend and, respectively, an accelerated economic growth. The Conference Board research group is to publish the official index reading at 14:00 GMT.

UK sovereign credit rating axed

Fitch ratings agency said it had reduced the United Kingdoms sovereign credit rating from AA+ to AA, while the outlook stays negative, following the shocking outcome from Fridays EU membership referendum. This is the second agency to cut Britains rating, after a day ago S&P Global Ratings reduced the countrys creditworthiness to AA from AAA with a negative outlook as well.

Last Friday Moodys Investors Services revised the outlook on the UKs long term issuer and debt ratings to “negative” from “stable”, while the ratings were confirmed at Aa1.

Bond Yield Spread

The yield on UK 2-year government bonds went as high as 0.286% on June 27th, after which it closed at 0.146% to lose 12.9 basis points (0.129 percentage point) compared to June 24th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.605% on June 27th, after which it fell to 0.594% at the close to lose 4.3 basis points (0.043 percentage point) compared to June 24th.

The spread between 2-year UK and 2-year US bond yields, which reflects the flow of funds in a short term, widened to 0.448% on June 27th from 0.362% on June 24th. The June 27th yield spread has been the largest one since June 6th, when the difference was 0.459%.

Daily, Weekly and Monthly Pivot Levels

By employing the Camarilla calculation method, the daily pivot levels for GBP/USD are presented as follows:

R1 – 1.3259
R2 – 1.3292
R3 (range resistance) – 1.3326
R4 (range breakout) – 1.3425

S1 – 1.3193
S2 – 1.3160
S3 (range support) – 1.3126
S4 (range breakout) – 1.3027

By using the traditional method of calculation, the weekly pivot levels for GBP/USD are presented as follows:

Central Pivot Point – 1.3977
R1 – 1.4724
R2 – 1.5764
R3 – 1.6511

S1 – 1.2937
S2 – 1.2190
S3 – 1.1150

In monthly terms, for GBP/USD we have the following pivots:

Central Pivot Point – 1.4526
R1 – 1.4722
R2 – 1.4966
R3 – 1.5162

S1 – 1.4282
S2 – 1.4086
S3 – 1.3842