Forex Market: GBP/USD trading outlook for September 6th 2016

Yesterday’s trade (in GMT terms) saw GBP/USD within the range of 1.3288-1.3377. The pair closed at 1.3302, inching up 0.07% compared to Fridays close. It has been the 152nd gain in the past 331 trading days and also a fourth consecutive one. The daily high has been a level unseen since July 15th, when a high of 1.3483 was registered. The major pair has increased its advance to 1.24% so far during the current month, after losing 0.72% in August.

At 8:02 GMT today GBP/USD was edging up 0.26% on the day to trade at 1.3337. The pair touched a daily high at 1.3354 during the early phase of the European trading session, overshooting the upper range breakout level (R4), and a daily low at 1.3297 during early Asian trade.

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

Fundamentals

United States

Services PMI by Markit – final reading

The final Services Purchasing Managers’ Index probably confirmed the preliminary reading of 50.9 in August, according to market expectations. It has been the lowest PMI reading since February, when a final 49.7 was reported. In July the index came in at a final 51.4, up from a preliminary reading of 50.9. The PMI is based on data collected from a representative panel of more than 400 private sector companies, which encompasses industries such as transport and communication, financial intermediaries, business and personal services, computing & IT and hotels and restaurants. Values above the key level of 50.0 indicate optimism (expanding activity). In case services sector activity rose at a faster rate than anticipated in August, this would have a moderate bullish effect on the US dollar. The final data by Markit Economics is due out at 13:45 GMT.

ISM Non-Manufacturing PMI

Activity in United States’ sector of services probably increased at a slightly faster pace in August from a month ago, with the corresponding non-manufacturing PMI coming in at a reading of 55.7, according to the median forecast by experts, up from a level of 55.5 in July. If expectations were met, August would be the 80th consecutive month, when the PMI stood in the area above 50.0.

The New Orders Index stood at 60.3 in July, or its highest level since October 2015, up from a reading of 59.9 in the prior month. The Employment Index went down to 51.4 in July, after being at 52.7 in June, according to data by the Institute for Supply Management (ISM). The Prices Index slowed down to 51.9 in July from 55.5 in June, which indicated prices went up for a fourth consecutive month. The Non-Manufacturing Business Activity Index slipped to 59.3 in July from a reading of 59.5 in June, indicating growth for an 84th straight month. Among a total of 17 non-manufacturing industries, 15 reported expansion in general activity in July.

In case the Non-Manufacturing PMI accelerated more than anticipated in August, this would have a strong bullish effect on the US Dollar. The Institute for Supply Management (ISM) is to release the official reading at 14:00 GMT.

Bond Yield Spread

The yield on UK 2-year government bonds went as high as 0.168% on September 5th, after which it closed at 0.123% to lose 1.2 basis points (0.012 percentage point) compared to September 2nd.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.803% on September 5th, after which it fell to 0.802% at the close to add 0.008 percentage point compared to September 2nd.

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, widened to 0.679% on September 5th from 0.659% on September 2nd. The September 5th yield spread has been the largest one so far this year.

Daily, Weekly and Monthly Pivot Levels

By employing the Camarilla calculation method, the Monday levels of importance for GBP/USD are presented as follows:

R1 – 1.3310
R2 – 1.3318
R3 (Range Resistance – Sell) – 1.3326
R4 (Long Breakout) – 1.3351
R5 (Breakout Target 1) – 1.3380
R6 (Breakout Target 2) – 1.3391

S1 – 1.3294
S2 – 1.3286
S3 (Range Support – Buy) – 1.3278
S4 (Short Breakout) – 1.3253
S5 (Breakout Target 1) – 1.3224
S6 (Breakout Target 2) – 1.3213

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

Central Pivot Point – 1.3236
R1 – 1.3412
R2 – 1.3531
R3 – 1.3707
R4 – 1.3883

S1 – 1.3117
S2 – 1.2941
S3 – 1.2822
S4 – 1.2703

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

Central Pivot Point – 1.3126
R1 – 1.3387
R2 – 1.3634
R3 – 1.3895
R4 – 1.4155

S1 – 1.2879
S2 – 1.2618
S3 – 1.2371
S4 – 1.2123