Yesterday’s trade (in GMT terms) saw GBP/USD within the range of 1.3169-1.3266. The pair closed at 1.3192, edging down 0.30% compared to Wednesdays close. It has been the 176th drop in the past 324 trading days. The major pair has increased its loss to 0.32% so far during the current month, after losing 0.59% of its value in July.
At 7:07 GMT today GBP/USD was edging up 0.24% on the day to trade at 1.3224. The pair touched a daily high at 1.3228 during the early phase of the European trading session, overshooting the range resistance level (R3), and a daily low at 1.3186 during early Asian trade.
On Friday GBP/USD trading may be influenced by the following macroeconomic reports and other events as listed below.
Fundamentals
United Kingdom
Gross Domestic Product – second estimate
The second estimate of United Kingdom’s GDP probably confirmed the preliminary estimate that economy expanded at a rate of 2.2% during the second quarter of the year compared to the same period a year ago. It has been the highest rate in a year. The Q1 final growth rate of 2.0% confirmed the second GDP estimate, released on May 26th.
The services sector expanded at a preliminary rate of 2.6% in the second quarter of 2016 compared to the same period a year ago, while accelerating from a final estimate of 2.5% growth in Q1. Within the sector, output in distribution, hotels and restaurants registered the highest rate of growth (5%, after a 4.8% increase in Q1), followed by business services and finance (2.7%, after a 2.3% growth in Q1), transport, storage and communication (2.4%, after a 2.8% increase in Q1) and government services (1.2%, after a 1.4% increase in Q1).
At the same time, output in UK industry grew 1.8% in the second quarter of 2016, accelerating from a 0.3% growth in the preceding quarter, while manufacturing output expanded 1.4% in Q2, rebounding after four straight quarters of contraction.
Construction output fell at a preliminary 1.2% in Q2 after a 0.2% growth in the prior quarter, the Office for National Statistics said.
In case revised growth rate in Q2 came below market expectations, this would mount a heavy selling pressure on the Sterling. The Office for National Statistics is expected to release the second GDP estimate at 8:30 GMT.
United States
Gross Domestic Product – second estimate
The second estimate of the US Gross Domestic Product probably pointed to an annualized rate of growth of 1.1% in the second quarter of 2016, according to the median forecast by analysts. The preliminary GDP estimate for Q2, reported on July 29th, pointed to an annual growth of 1.2%, or the fastest since Q4 2015. In Q1 2016 the US economy expanded at an annualized rate of 1.1%, according to final data.
The preliminary report showed that Q2 growth was mostly driven by consumer spending, while investment activity dropped and inventories decreased for the first time since 2011.
According to provisional data, real personal consumption expenditures rose 4.2% during the second quarter, or at the fastest rate since Q4 2014, following an increase by 1.6% in Q1. This component added 2.83 percentage points to growth, or the most in six quarters.
Fixed investment shrank 3.2% in Q2, following a 0.9% drop in the prior quarter. Non-residential investment contracted at a slower 2.2% in Q2, while residential investment shrank at a preliminary 6.1% during the period, after increasing 7.8% in Q1. Fixed investment subtracted 0.52 percentage points from US growth.
Private inventories subtracted 1.16 percentage points from economic growth in Q2, after shedding 0.41 percentage points in Q1.
Government expenditures shrank 0.9% and subtracted 0.23 percentage points from growth during the same period, after contributing 0.28 percentage points in Q1, according to preliminary data by the US Bureau of Economic Analysis.
US exports rose 1.4% in Q2, following three consecutive quarters of decline. At the same time, the nation’s imports went down 0.4% in Q2, while extending the drop in the first quarter, which resulted in a positive impact on GDP growth during the period (adding 0.23 percentage points, or the highest contribution since Q3 2014).
In case the growth rate revision down was steeper than projected in Q2, this would have a strong bearish effect on the US dollar. The second GDP estimate is to be released at 12:30 GMT.
Reuters/Michigan Consumer Sentiment Index – final reading
The monthly survey by Thomson Reuters and the University of Michigan may show that consumer confidence in the United States improved in August from a month ago. The final reading of the corresponding index, which usually comes out two weeks after the preliminary data, probably came in at 90.6, up from a preliminary value of 90.4. In July the index stood at a final reading of 90.0, up from a preliminary value of 89.5. The survey encompasses about 500 respondents throughout the country. The index is comprised by two major components, a gauge of current conditions and a gauge of expectations. The current conditions index is based on the answers to two standard questions, while the index of expectations is based on three standard questions. All five questions have an equal weight in determining the value of the overall index.
According to the preliminary report, the sub-index of current economic conditions, which measures US consumers’ views of their personal finances, went down to 106.1 in August from a final reading of 109.0 in July. The sub-index of consumer expectations accelerated to a flash reading of 80.3 in August from a final value of 77.8 in July.
Respondents in the August survey expect that the rate of inflation during the next year will probably be at 2.5%, down from 2.7% as expected in the July survey.
In case the final value of the August consumer sentiment index outpaced the median forecast by analysts, this would have a moderate bullish effect on the US dollar. The final reading is due out at 14:00 GMT.
Fed’s Yellen statement at the Jackson Hole symposium
At the same hour Federal Reserve Chair, Janet Yellen, is expected to speak at the Jackson Hole Economic Policy Symposium in Wyoming, which commenced yesterday. Sponsored by the Federal Reserve Bank of Kansas City since 1978, the forum is attended by central bankers, policy experts, academics and financial market investors, who discuss a number of economic topics, including monetary policies. In case Yellen offers clues over the timing of the next rate hike, or any remarks on US macroeconomic outlook, USD volatility would certainly increase.
Bond Yield Spread
The yield on UK 2-year government bonds went as high as 0.172% on August 25th, or the highest level since August 18th (0.175%), after which it closed at 0.159% to add 1.9 basis points (0.019 percentage point) compared to August 24th.
Meanwhile, the yield on US 2-year government bonds climbed as high as 0.797% on August 25th, or the highest level since July 7th (0.807%), after which it fell to 0.793% at the close to add 2.7 basis points (0.027 percentage point) compared to August 24th.
The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, widened to 0.634% on August 25th from 0.626% on August 24th. The August 25th yield spread has been the largest 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 – 1.3201
R2 – 1.3210
R3 (Range Resistance – Sell) – 1.3219
R4 (Long Breakout) – 1.3245
R5 (Breakout Target 1) – 1.3277
R6 (Breakout Target 2) – 1.3289
S1 – 1.3183
S2 – 1.3174
S3 (Range Support – Buy) – 1.3165
S4 (Short Breakout) – 1.3139
S5 (Breakout Target 1) – 1.3107
S6 (Breakout Target 2) – 1.3095
By using the traditional method of calculation, the weekly levels of importance for GBP/USD are presented as follows:
Central Pivot Point – 1.3043
R1 – 1.3220
R2 – 1.3363
R3 – 1.3540
R4 – 1.3717
S1 – 1.2900
S2 – 1.2723
S3 – 1.2580
S4 – 1.2437
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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