Forex Market: GBP/USD daily trading outlook

Thursday’s trade saw GBP/USD within the range of 1.4727-1.4845. The pair closed at 1.4739, shedding 0.52% on a daily basis, while marking its third drop in the past four trading days. The daily low has been the lowest level since April 15th 2015, when a low of 1.4699 was registered. In weekly terms, GBP/USD lost 1.30% of its value during the past week, following a 0.26% surge in the week ended on December 27th. The pair has depreciated 2.11% in December, extending the slump posted in November.

At 8:37 GMT today GBP/USD was up 0.19% for the day to trade at 1.4766. The pair touched a daily low at 1.4693 during the early hours of the Asian trading session, or a level unseen since April 14th, and a daily high at 1.4772 at 8:10 GMT. Support may be received at the round 1.4650 level and after that – at the low from April 14th (1.4601).

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

Fundamentals

United Kingdom

Consumer lending, Mortgage approvals

Lending to consumers in the United Kingdom probably expanded to GBP 1.300 billion in November from GBP 1.178 billion in October. If so, this would be the highest amount borrowed by individuals since May 2008, when a figure of GBP 1.3 billion was reported as well. This indicator represents borrowing by the UK personal sector (individuals only) to fund current expenditures on goods and services, which are a driving force behind economic growth. Within a booming economy, excessively high levels of consumer lending may be taken as an indication that economy itself is set to overheat. It is so, because individuals tend to borrow money in order to live beyond their means. Within a sluggish economy, however, in case lending to individuals expanded more than projected, this would usually have a moderate bullish effect on the sterling. Bank of England (BoE) is to release the official numbers at 9:30 GMT.

At the same time, the number of mortgage approvals in the United Kingdom probably rose to 70 400 in November, according to experts’ expectations, from 69 630 in October. If so, it would be the highest number of mortgages approved since August 2015, when a figure of 71 030 was reported. Mortgage approvals are considered as a leading indicator, reflecting the health of the country’s housing market. In case the number of mortgages approved increased more than anticipated, this would imply potentially higher demand in the nation’s housing sector and, respectively, a positive impulse for overall economy. Therefore, the national currency would also be supported. Bank of England will release the official data at 9:30 GMT.

United States

Manufacturing PMI by Markit – final reading

The final estimate of the Manufacturing Purchasing Managers’ Index for December probably confirmed the flash estimate of 51.3, which was reported on December 16th. If expectations were met, this would be the lowest PMI reading since October 2012, when the final gauge was reported at 51.0. In November the final seasonally adjusted PMI stood at 52.8, inching up from a preliminary value of 52.6.

According to preliminary data by Markit, ”Manufacturing production increased only moderately in December, with the rate of expansion the weakest for just over two years. Softer output growth was widely linked to a weaker-than-expected upturn in new business volumes and a corresponding drop in capacity pressures. Reflecting this, latest data highlighted a decrease in backlogs of work for the second month running, and the pace of decline was the fastest since late-2012.”

”Manufacturers were more cautious about their purchasing activity and inventory volumes in December. Input buying expanded at the slowest pace for just over two years, while pre-production stocks decreased for the first time since June 2014. Finished goods inventories rose marginally in December, but some manufacturers linked the upturn to weaker-than-expected sales at the end of the year”, Markit stated.

Values above the key level of 50.0 indicate optimism (expanding activity). In case the final PMI for December confirmed or came below the preliminary reading, this would cause a moderate bearish impact on the US dollar. The final reading is due out at 14:45 GMT.

Manufacturing PMI by the ISM

US gauge for manufacturing sector activity probably remained in the zone of contraction for a second consecutive month in December, coming in at 49.0, according to expectations, up from 48.6 in November. The latter has been the lowest PMI reading since June 2009, when the barometer was reported at a level of 44.8.

The New Orders Index plunged to 48.9 in November from 52.9 in October. The sub-gauge of production was reported at 49.2, falling from 52.9 in October. The index of employment rose to a value of 51.3 in November from 47.6 in the preceding month. The gauge of prices was at 35.5 in November, down from 39.0 in October, which suggested lower prices of raw materials for a 13th month in a row. In November, 5 manufacturing industries reported growth, 10 reported contraction and 3 registered no change in conditions, according to the report by the Institute for Supply Management (ISM).

In case the PMI improved more than anticipated in December, this would have a strong bullish effect on the greenback. The Institute for Supply Management (ISM) is to release the official reading at 15:00 GMT.

Correlation with other Majors

Taking into account the week ended on December 31st and the daily closing levels of the currency pairs involved, we come to the following conclusions in regard to the strength of relationship:

GBP/USD to EUR/USD (0.9899, or very strong)
GBP/USD to USD/CAD (0.8399, or very strong)
GBP/USD to USD/JPY (0.4865, or moderate)
GBP/USD to NZD/USD (0.4581, or moderate)
GBP/USD to AUD/USD (-0.5683, or strong)
GBP/USD to USD/CHF (-0.9135, or very strong)

1. During the examined period GBP/USD moved almost equally in one and the same direction with USD/CAD and EUR/USD. The correlation between GBP/USD and EUR/USD was almost perfect.

2. GBP/USD moved almost equally in the opposite direction compared to USD/CHF during the past week.

3. GBP/USD moved strongly in the opposite direction compared to AUD/USD during the period in question.