Forex Market: GBP/USD trading outlook for August 9th 2016

Yesterday’s trade (in GMT terms) saw GBP/USD within the range of 1.3028-1.3098. The pair closed at 1.3041, shedding 0.22% compared to Fridays close. It has been the 169th drop in the past 311 trading days and also a fourth consecutive one. The major pair has extended its decline to 1.44% so far during the current month, after losing 0.59% of its value in July.

At 6:46 GMT today GBP/USD was edging down 0.43% on the day to trade at 1.2985. The pair touched a daily high at 1.3051 during the early phase of the Asian trading session, undershooting the daily R2 level, and a daily low at 1.2973 during late Asian trade.

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

Fundamentals

United Kingdom

Industrial, Manufacturing Production

Annualized industrial production in the United Kingdom probably expanded for a third consecutive month in June, according to market expectations, at a pace of 1.6%. In May the index of industrial output rose 1.4% year-on-year. In monthly terms, industrial production probably rebounded in June, going up 0.1%, according to expectations, following a 0.5% contraction in May. The latter has been the sharpest monthly decrease since December 2015, when output shrank at an unrevised 1.1%. Within the index, the gauge for electricity, gas, steam and air conditioning went down 2.9%, that for manufacturing shrank 0.5%, the sub-index of oil and gas extraction fell 0.2%, while the one reflecting mining output was down 0.1%. The index of industrial output measures the change in the total inflation-adjusted value of production in sectors such as manufacturing, mining and utilities. Consistent rates of increase in industrial production suggest inflation pressure build-up.

United Kingdom’s annualized manufacturing production, an indicator which accounts for almost 80% of the nation’s industrial output, probably expanded 1.3% in June, according to the median forecast by analysts. If so, this would be the third consecutive period of expansion. In May manufacturing output rose at an annualized rate of 1.7%, or the steepest since January 2015. In monthly terms, manufacturing production probably contracted 0.2% in June, according to the median estimate by experts, following a 0.5% drop in May. As it is a key component of the country’s Gross Domestic Product, in case annual manufacturing production rose more than projected, this would have a moderate bullish effect on the Sterling. The Office for National Statistics (ONS) will release the official industrial report at 8:30 GMT.

Balance of Trade

The deficit on United Kingdom’s visible trade balance (goods only) probably widened to GBP 10.10 billion in June, according to market expectations, from GBP 9.88 billion in May. The latter has been the smallest gap on the countrys trade in goods since September 2015, when a revised down deficit of GBP 8.80 billion was reported.

The deficit on United Kingdoms total trade balance widened to GBP 2.26 billion in May from a revised down gap of GBP 1.95 billion in April, as exports shrank at the steepest rate in ten months.

During the month, total exports fell 4.4% to reach GBP 43.09 billion. Mays performance was mostly influenced by an 8.2% slump in shipments of goods, which more than offset the 0.7% increase in export of services. Exports of unspecified goods shrank GBP 1.2 billion in May, those of chemicals dropped GBP 0.4 billion, while machinery shipments were GBP 0.4 billion lower.

Total imports went down 3.5% to reach GBP 45.3 billion during the same period, dragged down by imports of goods. Both purchases of chemicals and those of ships and aircraft (combined) dropped by GBP 0.5 billion, while imports of machinery fell GBP 0.3 billion in May.

In case the UK visible trade deficit widened more than anticipated in June, this would have a moderate bearish effect on the Sterling, because of negative implications regarding the nations economic growth. The Office for National Statistics (ONS) will release the official trade data at 8:30 GMT.

GDP estimate by the NIESR

At 14:00 GMT the National Institute of Economic and Social Research (NIESR) will release its estimate in regard to UK Gross Domestic Product over the three months to July. During the three-month period to June the NIESR estimate pointed to a 0.6% GDP growth, or the highest projection since the three-month period to December 2015 (+0.6%). The report is considered as highly reliable and usually heightens volatility of the pairs containing the Sterling.

United States

Wholesale Inventories

The value of goods inventories, held at US wholesalers, probably rose at a monthly rate of 0.1% in June, according to market expectations. If so, it would match the rate in May and would also be the fourth consecutive month of expansion. In case inventories grew at a faster rate than projected in June, this would have a limited-to-moderate bearish effect on the US Dollar. The Census Bureau is to release the official report at 14:00 GMT.

Bond Yield Spread

The yield on UK 2-year government bonds went as high as 0.156% on August 8th, after which it closed at 0.123% to lose 3 basis points (0.03 percentage point) compared to August 5th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.746% on August 8th, or the highest level since July 29th (0.750%), after which it fell to 0.726% at the close to remain unchanged compared to August 5th.

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, widened to 0.603% on August 8th from 0.573% on August 5th. The August 8th yield spread has been the highest one so far this year.

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 – 1.3047
R2 – 1.3054
R3 (Range Resistance – Sell) – 1.3060
R4 (Long Breakout) – 1.3080
R5 (Breakout Target 1) – 1.3102
R6 (Breakout Target 2) – 1.3111

S1 – 1.3035
S2 – 1.3028
S3 (Range Support – Buy) – 1.3022
S4 (Short Breakout) – 1.3003
S5 (Breakout Target 1) – 1.2980
S6 (Breakout Target 2) – 1.2971

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

Central Pivot Point – 1.3155
R1 – 1.3289
R2 – 1.3507
R3 – 1.3641
R4 – 1.3774

S1 – 1.2937
S2 – 1.2803
S3 – 1.2585
S4 – 1.2366

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