Friday’s trade (in GMT terms) saw GBP/USD within the range of 1.3148-1.3303. The pair closed at 1.3234, rising 0.54% compared to Thursdays close. It has been the 141st gain in the past 305 trading days. The daily high has been the highest level since July 18th, when a high of 1.3316 was registered. In weekly terms, GBP/USD added 0.95% to its value during the past week. It has been the 15th gain in the past 30 weeks. The major pair fell 0.59% in July, after depreciating 8.06% in June.
At 7:05 GMT today GBP/USD was inching up 0.07% on the day to trade at 1.3243. The pair touched a daily high at 1.3274 during the mid phase of the Asian trading session, undershooting the range resistance level (R3), and a daily low at 1.3200 during early Asian trade.
On Monday GBP/USD trading may be influenced by the following macroeconomic reports as listed below.
Fundamentals
United Kingdom
Manufacturing PMI by Markit/CIPS
Activity in United Kingdom’s sector of manufacturing probably shrank for the first time in three months in July, with the corresponding Purchasing Managers Index coming in at a final reading of 49.1, according to the median forecast by experts, or matching the preliminary estimate, reported on July 22nd. It has been the lowest reading since March 2013, as the sub-gauges of output and new orders both decreased for the first time since early 2013. In June the PMI was reported at 52.1.
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 below 50.0 signify that respondents are rather pessimists about business conditions in the sector than optimists.
In case the PMI dropped more than projected in July, 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 8:30 GMT.
United States
Manufacturing PMI by Markit – final reading
The final estimate of the Manufacturing Purchasing Managers Index for July probably confirmed the preliminary reading of 52.9, according to the median forecast by analysts. It has been the highest PMI reading since October 2015, when a final 54.1 was reported. In June the final seasonally adjusted PMI stood at 51.3, down from a preliminary reading of 51.4.
According to the preliminary report by Markit, ”Higher levels of manufacturing production have now been recorded for the past two months, with the latest expansion the fastest since November 2015.”
”An acceleration of production growth was driven by a robust rise in new business volumes in July. The latest expansion was the fastest for nine months and close to its post-crisis average. Meanwhile, new export orders rose at a weaker pace than seen for overall new business, suggesting that domestic markets remained the main driver of growth in July.”
”Manufacturers also boosted their input buying in response to greater workloads. Higher levels of purchasing activity have now been recorded for three months running, but the latest survey indicated that input stocks were depleted again. Finished goods inventories also decreased in July, which firms linked to deliberate stock reduction policies and associated efforts to boost efficiency”, Markit stated.
Values above the key level of 50.0 indicate predominant optimism (expanding activity). In case the final PMI for July came in line with expectations or accelerated even further, this would lead to a moderate bullish impact on the US dollar. The final reading is due out at 13:45 GMT.
Manufacturing PMI by the ISM
Activity in United States’ manufacturing sector probably increased at a slower pace in July, with the corresponding manufacturing PMI coming in at a reading of 53.0, according to market expectations, down from 53.2 in June. If so, this would be the fifth consecutive month of expansion, which followed four successive months of contraction.
Junes PMI level has been the highest one since February 2015. The New Orders Index came in at 57.0 in June, rising from 55.7 in May. The sub-gauge of production was reported at 54.7 in June, accelerating from 52.6 in the preceding month. The index of employment rose to a value of 50.4 in June from 49.2 in the preceding month. The gauge of prices was at 60.5 in June, falling from 63.5 in May, which suggested lower prices of raw materials for the first time in four months. In May, out of a total of 18 manufacturing industries, 13 reported growth, 3 reported contraction and 2 reported no change in overall business activity, according to the report by the Institute for Supply Management (ISM).
Readings above the key level of 50.0 are indicative of expanding activity in the sector of manufacturing. In case, however, the PMI slowed down more than anticipated, this would have a strong bearish effect on the US dollar. The Institute for Supply Management (ISM) is to release the official reading at 14:00 GMT.
Correlation with other Majors
Taking into account the business week ended on July 29th and the daily closing levels of the major currency pairs, we come to the following conclusions in regard to the strength of relationship:
GBP/USD to EUR/USD (0.8318, or very strong)
GBP/USD to NZD/USD (0.7639, or strong)
GBP/USD to AUD/USD (0.6341, or strong)
GBP/USD to USD/JPY (-0.5773, or strong)
GBP/USD to USD/CAD (-0.6671, or strong)
GBP/USD to USD/CHF (-0.7061, or strong)
1. During the examined period GBP/USD moved strongly in one and the same direction with AUD/USD and NZD/USD, while moving strongly in the opposite direction compared to USD/JPY, USD/CAD and USD/CHF.
2. GBP/USD moved almost equally in one and the same direction with EUR/USD during the past week.
Bond Yield Spread
The yield on UK 2-year government bonds went as high as 0.163% on July 29th, after which it closed at 0.112% to lose 1.8 basis points (0.018 percentage point) compared to July 28th.
Meanwhile, the yield on US 2-year government bonds climbed as high as 0.750% on July 29th, after which it fell to 0.659% at the close to lose 5.6 basis points (0.056 percentage point) compared to July 28th.
The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, narrowed to 0.547% on July 29th from 0.585% on July 28th. The July 29th yield spread has been the lowest one since July 21st, when the difference was 0.513%.
Daily, Weekly and Monthly Pivot Levels
By employing the Camarilla calculation method, the daily levels of importance for GBP/USD are presented as follows:
R1 – 1.3248
R2 – 1.3262
R3 (Range Resistance – Sell) – 1.3277
R4 (Long Breakout) – 1.3319
R5 (Breakout Target 1) – 1.3369
R6 (Breakout Target 2) – 1.3390
S1 – 1.3220
S2 – 1.3206
S3 (Range Support – Buy) – 1.3191
S4 (Short Breakout) – 1.3149
S5 (Breakout Target 1) – 1.3099
S6 (Breakout Target 2) – 1.3078
By using the traditional method of calculation, the weekly levels of importance for GBP/USD are presented as follows:
Central Pivot Point – 1.3198
R1 – 1.3339
R2 – 1.3444
R3 – 1.3585
R4 – 1.3726
S1 – 1.3093
S2 – 1.2952
S3 – 1.2847
S4 – 1.2742
In monthly terms, for GBP/USD we have the following pivots:
Central Pivot Point – 1.3171
R1 – 1.3546
R2 – 1.3858
R3 – 1.4233
R4 – 1.4608
S1 – 1.2859
S2 – 1.2484
S3 – 1.2172
S4 – 1.1860
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