Forex Market: GBP/USD trading outlook for October 17th 2016

Friday’s trade (in GMT terms) saw GBP/USD within the range of 1.2168-1.2264. The pair closed at 1.2187, losing 0.54% compared to Thursdays close. It has been the 194th drop in the past 360 trading days. In weekly terms, GBP/USD lost 1.99% of its value during the past week. It has been the 22nd drop in the past 41 weeks and also a second consecutive one. The major pair has extended its slump to 6.09% so far during the current month, after losing 1.23% in September.

At 7:10 GMT today GBP/USD was inching up 0.02% on the day to trade at 1.2190. The pair touched a daily high at 1.2199 during the early phase of the European trading session, overshooting the daily R1 level, and a daily low at 1.2151 during early Asian trade.

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

Fundamentals

United States

NY Empire State Manufacturing Index

The New York Empire State Manufacturing Index probably rebounded in October, going up to a reading of 1.00, according to the median forecast by experts. In September the gauge came in at -1.99, which marked a second straight period of negative readings.

In September, inventories shrank at a faster rate, while delivery times have shortened. The gauges of new orders and shipments fell markedly, while labor market conditions weakened, as both employment levels and the average workweek were reported as lower. Price indexes stayed near their August levels, which signaled ongoing moderate input price increases and a continued selling price growth. Respondents in the survey expected overall conditions to improve during the upcoming six months.

Index readings above 0.00 are indicative of improving business conditions in the region. Higher-than-anticipated index values will usually have a moderate bullish effect on the US dollar. The Federal Reserve Bank of New York is expected to release the official reading at 12:30 GMT.

Industrial Production

Industrial output in the United States probably rebounded in September, going up at a monthly rate of 0.2%, according to market expectations. In August, the index of production registered a 0.4% monthly slump.

In August, output in the US mining sector rose for a fourth straight month, up 1.0%, as a drop in coal mining was outweighed by surges in oil and gas extraction, oil well drilling and servicing, and metal ore and non-metallic mineral mining.

The gauge for utilities registered a 1.4% monthly drop in August. However, the gauge still remained 1.7% above its August 2015 level, as demand for air conditioning was bolstered due to hot summer.

Manufacturing production, which accounts for almost three quarters of total industrial production, shrank 0.4% in August from a month ago, as production of durables (-0.6%), non-durables (-0.2%) and other manufacturing areas (publishing and logging) (-0.7%) all dropped.

A larger-than-projected monthly increase in the index would usually have a moderate bullish effect on the US dollar. The Board of Governors of the Federal Reserve is to release the official production data at 13:15 GMT.

Correlation with other Majors

Taking into account the business week ended on October 14th and the daily closing levels of the major currency pairs, we come to the following conclusions in regard to the strength of relationship:

GBP/USD to NZD/USD (0.9333, or very strong)
GBP/USD to EUR/USD (0.6983, or strong)
GBP/USD to AUD/USD (0.5641, or strong)
GBP/USD to USD/JPY (-0.1592, or weak)
GBP/USD to USD/CAD (-0.4425, or moderate)
GBP/USD to USD/CHF (-0.8497, or very strong)

1. During the examined period GBP/USD moved strongly in one and the same direction with AUD/USD and EUR/USD.

2. GBP/USD moved almost equally in one and the same direction with NZD/USD during the past week, while moving almost equally in the opposite direction compared to USD/CHF.

3. The correlation between GBP/USD and USD/JPY was insignificant.

Bond Yield Spread

The yield on UK 2-year government bonds went up as high as 0.281% on October 14th, or the highest level since June 24th (0.337%), after which it closed at 0.219% to add 0.006 percentage point compared to October 13th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.863% on October 14th, or matching the high from a day ago, after which it fell to 0.843% at the close to add 0.004 percentage point compared to October 13th.

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, narrowed to 0.624% on October 14th from 0.626% on October 13th. The October 14th yield spread has been the lowest one since September 16th, when the difference was 0.619%.

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 – 1.2196
R2 – 1.2205
R3 (Range Resistance – Sell) – 1.2213
R4 (Long Breakout) – 1.2240
R5 (Breakout Target 1) – 1.2271
R6 (Breakout Target 2) – 1.2283

S1 – 1.2178
S2 – 1.2169
S3 (Range Support – Buy) – 1.2161
S4 (Short Breakout) – 1.2134
S5 (Breakout Target 1) – 1.2103
S6 (Breakout Target 2) – 1.2091

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

Central Pivot Point – 1.2241
R1 – 1.2392
R2 – 1.2598
R3 – 1.2749
R4 – 1.2901

S1 – 1.2035
S2 – 1.1884
S3 – 1.1678
S4 – 1.1473

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