Yesterday’s trade (in GMT terms) saw GBP/USD within the range of 1.2719-1.2861. The pair closed at 1.2728, losing 0.89% compared to Mondays close. It has been the 189th drop in the past 352 trading days and also a second consecutive one. The daily low has been a level unseen since June 1985. The major pair has increased its slump to 1.93% so far during the current month, after losing 1.23% in September.
At 7:04 GMT today GBP/USD was edging down 0.22% on the day to trade at 1.2700. The pair touched a daily high at 1.2748 during the early phase of the Asian trading session, undershooting the daily R2 level, and a daily low at 1.2686 during early European trade.
Recent comments by UK Prime Minister Theresa May that Article 50 of the Lisbon Treaty may be triggered by the end of March next year continued to pressure the Sterling. Concerns over a “hard Brexit” scenario emerged, a scenario that may lead to an exodus of banks from London, which sent GBP/USD below the 1.2700 mark to fresh 31-year lows.
On Wednesday GBP/USD trading may be influenced by the following macroeconomic reports and other events as listed below.
Fundamentals
United Kingdom
Services PMI by Markit/CIPS
Activity in United Kingdom’s sector of services probably increased at a slower rate in September from a month ago, with the corresponding PMI coming in at a reading of 52.0, according to market expectations, from 52.9 in August. The latter has been a sharp recovery from July’s 7-year low and also the highest PMI reading since May 2016.
In August, the sub-gauges of production and new business orders climbed back above 50.0, job growth resumed, while input cost inflation accelerated the most since November 2013. At the same time, respondents’ business expectations regarding the next 12 months rebounded in August from an 89-month low, registered in July.
Values above the key level of 50.0 signify predominant optimism (expansion in general activity). In case, however, the PMI slowed down in line with the median forecast, or even at a faster rate in September, this would have a moderate-to-strong bearish effect on the Sterling. The Chartered Institute of Purchasing and Supply (CIPS) is expected to release the official index reading at 8:30 GMT.
United States
Change in employment by the ADP
Employers in the US non-farm private sector probably added 170 000 new jobs during September, according to the median estimate by experts, following 177 000 new positions added in August. If expectations were met, this would be the slowest employment growth since April, when the revised down 149 000 new jobs were reported.
In August, employment in the goods-producing sector dropped by 6 000, while employment in services increased by 183 000. Employment in trade, transportation and utilities grew by 26 000 during the month, in professional and business services – by 53 000 and in financial activities – by 15 000. On the other hand, employment in US construction fell by 2 000, while being unchanged in the manufacturing sector.
In case new job growth was slower than expected in September, this would have a moderate-to-strong bearish effect on the US dollar. The official figure is scheduled to be released at 12:15 GMT.
Balance of Trade
The deficit on US balance of trade probably widened to USD 40.00 billion in August, according to market expectations, from a deficit figure of USD 39.47 billion in July. The latter has been the lowest trade gap since April, as total exports expanded to their highest level since September 2015, while total imports shrank.
In July, US exports grew at a monthly rate of 1.9% to USD 186.3 billion, as goods exports rose by USD 3.4 billion to USD 124.1 billion and exports of services edged down less than USD 0.1 billion to USD 62.2 billion.
During the same month, US imports shrank at a monthly rate of 0.8% to USD 225.8 billion, as purchases of goods dropped by USD 1.9 billion to USD 184.4 billion and inbound shipments of services edged up USD 0.1 billion to USD 41.4 billion.
The year-to-date trade deficit narrowed 0.2% (USD 0.5 billion) compared to the same period a year ago.
In case the trade balance deficit widened more than anticipated in August, this would have a strong bearish effect on the US dollar, because of negative implications in regard to economic growth. The Bureau of Economic Analysis will release the official trade data at 12:30 GMT.
Fed speakers
At 13:30 GMT the Fed President for Minneapolis, Neel Kashkari, is expected to take a statement at the “Early Childhood Development in Indian Country” Conference, which will be hosted by the Federal Reserve Bank of Minneapolis.
Meanwhile, at 21:00 GMT the Fed President for Richmond and also a member of the Federal Open Market Committee, Jeffrey Lacker, is to speak on “Does Federal Reserve Governance Need Reform?” at Marshall University.
Any remarks in regard to the Bank’s future policy or US macroeconomic environment would heighten USD volatility.
Services PMI by Markit – final reading
The final Services Purchasing Managers’ Index probably confirmed the preliminary reading of 51.9 in September, according to market expectations. It has been the highest PMI reading since April, when a final 52.8 was reported. In August the index came in at a final 51.0, up from a preliminary reading of 50.9.
According to provisional data, in September, new business growth continued, while new orders, employment growth and input cost inflation slowed.
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 September, 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 faster pace in September from a month ago, with the corresponding non-manufacturing PMI coming in at a reading of 53.0, according to the median forecast by experts, up from a level of 51.4 in August. If expectations were met, September would be the 81st consecutive month, when the PMI stood in the area above 50.0.
August’s headline PMI reading has been the lowest since February 2010. The New Orders Index stood at 51.4 in August, sliding from a reading of 60.3 in the prior month. The Employment Index went down to 50.7 in August, after being at 51.4 in July, according to data by the Institute for Supply Management (ISM). The Prices Index edged down to 51.8 in August from 51.9 in July, which indicated prices went up for a fifth consecutive month, but yet, at a slower rate. The Non-Manufacturing Business Activity Index tumbled to 51.8 in August from a reading of 59.3 in July, indicating growth for an 85th straight month. Among a total of 18 non-manufacturing industries, 11 reported expansion and 7 reported contraction in general activity in August.
In case the Non-Manufacturing PMI accelerated more than anticipated in September, 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 up as high as 0.142% on October 4th, or the highest level since September 20th (0.144%), after which it closed at 0.138% to add 4.4 basis points (0.044 percentage point) compared to October 3rd.
Meanwhile, the yield on US 2-year government bonds climbed as high as 0.834% on October 4th, or the highest level since September 21st (0.848%), after which it fell to 0.822% at the close to add 2.4 basis points (0.024 percentage point) compared to October 3rd.
The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, narrowed to 0.684% on October 4th from 0.704% on October 3rd. The October 4th yield spread has been the lowest one since September 30th, when the difference was 0.656%.
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 – 1.2741
R2 – 1.2754
R3 (Range Resistance – Sell) – 1.2767
R4 (Long Breakout) – 1.2806
R5 (Breakout Target 1) – 1.2852
R6 (Breakout Target 2) – 1.2870
S1 – 1.2715
S2 – 1.2702
S3 (Range Support – Buy) – 1.2689
S4 (Short Breakout) – 1.2650
S5 (Breakout Target 1) – 1.2604
S6 (Breakout Target 2) – 1.2586
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
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