Forex Market: GBP/USD trading outlook for October 4th 2016

Yesterday’s trade (in GMT terms) saw GBP/USD within the range of 1.2817-1.2948. The pair closed at 1.2842, plummeting 1.05% compared to Fridays close. It has been the 188th drop in the past 351 trading days and also the steepest one since September 16th. The daily low has been a level unseen since July 6th, when a low of 1.2796 was registered. The major pair has dropped 1.05% so far during the current month, after losing 1.23% in September.

At 7:00 GMT today GBP/USD was losing 0.55% on the day to trade at 1.2772. The pair touched a daily high at 1.2861 during the early phase of the Asian trading session, undershooting the daily R2 level, and a daily low at 1.2770 during early European trade.

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

Fundamentals

United Kingdom

Construction PMI by Markit/CIPS

Activity in United Kingdom’s sector of construction probably shrank for a fourth consecutive month in September, with the corresponding Purchasing Managers’ Index coming in at a reading of 49.0, according to market expectations. In August the index stood at 49.2, rebounding from an 85-month low of 45.9, registered in July. In August, the sub-gauges of business activity and new orders fell at a lesser pace compared to the prior month, while the sub-index of employment improved. Respondents’ business expectations regarding the next 12 months rebounded, while input cost inflation accelerated for a third straight month in August to its highest level since July 2011.

Values below the key level of 50.0 signify predominant pessimism in regard to business conditions. In case the PMI met expectations or dropped even more in September, this would have a limited-to-moderate bearish effect on the Sterling. The Chartered Institute of Purchasing and Supply (CIPS) is to release the official index reading at 8:30 GMT.

United States

Fed’s Lacker speech

At 12:05 GMT the Fed President for Richmond and also a FOMC member, Jeffrey Lacker, is expected to speak at the West Virginia Economic Outlook Conference in Charleston, WV. Any remarks in regard to the Bank’s future policy or US macroeconomic environment would certainly heighten USD volatility.

Pound pressured on Article 50 trigger comments

Yesterday the Sterling sharply depreciated to 3-month lows against the US Dollar, after reports in the media emerged that the UK government intended to invoke Article 50 of the Lisbon Treaty by the end of March next year.

”We are going to be a fully independent, sovereign country – a country that is no longer part of a political union with supranational institutions that can override national parliaments and courts”, UK Prime Minister, Theresa May, said at the Conservative Party’s annual conference in Birmingham on Sunday. ”And that means we are going, once more, to have the freedom to make our own decisions on a whole host of different matters, from how we label our food to the way in which we choose to control immigration.”

Today the UK currency continued to lose ground, falling to lows unseen since June 1985.

Bond Yield Spread

The yield on UK 2-year government bonds went up as high as 0.145% on October 3rd, or the highest level since September 19th (0.161%), after which it closed at 0.091% to lose 1.9 basis points (0.019 percentage point) compared to September 30th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.802% on October 3rd, or the highest level since September 21st (0.848%), after which it fell to 0.798% at the close to add 3.2 basis points (0.032 percentage point) compared to September 30th.

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, widened to 0.707% on October 3rd from 0.656% on September 30th. The October 3rd 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 – 1.2854
R2 – 1.2866
R3 (Range Resistance – Sell) – 1.2878
R4 (Long Breakout) – 1.2914
R5 (Breakout Target 1) – 1.2956
R6 (Breakout Target 2) – 1.2973

S1 – 1.2830
S2 – 1.2818
S3 (Range Support – Buy) – 1.2806
S4 (Short Breakout) – 1.2770
S5 (Breakout Target 1) – 1.2728
S6 (Breakout Target 2) – 1.2711

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

Central Pivot Point – 1.2984
R1 – 1.3053
R2 – 1.3127
R3 – 1.3196
R4 – 1.3264

S1 – 1.2910
S2 – 1.2841
S3 – 1.2767
S4 – 1.2692

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

Central Pivot Point – 1.3113
R1 – 1.3312
R2 – 1.3645
R3 – 1.3844
R4 – 1.4042

S1 – 1.2780
S2 – 1.2581
S3 – 1.2248
S4 – 1.1914