Yesterday’s trade (in GMT terms) saw GBP/USD within the range of 1.3061-1.3176. The pair closed at 1.3132, inching down 0.07% compared to Mondays close. It has been the 163rd drop in the past 302 trading days. The daily low has been an exact test of the low from July 20th. The major pair has trimmed its slump to 1.26% so far during the current month, after depreciating 8.06% in June.
At 6:45 GMT today GBP/USD was edging down 0.10% on the day to trade at 1.3119. The pair touched a daily high at 1.3161 during the early phase of the Asian trading session, undershooting the range resistance level (R3), and a daily low at 1.3106 during early Asian trade as well.
On Wednesday GBP/USD trading may be influenced by the following macroeconomic reports and other events as listed below.
Fundamentals
United Kingdom
Gross Domestic Product – preliminary estimate
The preliminary estimate of United Kingdoms GDP probably showed that economy expanded at a rate of 2.0% during the second quarter of the year compared to the same period a year ago. If so, this would be the slowest annual rate of growth since Q3 2013. The Q1 final growth rate of 2.0% confirmed the second GDP estimate, released on May 26th.
Household consumption expenditure rose at a final rate of 2.8% in the first quarter of 2016 compared to the same period a year ago, while accelerating from a second estimate of 2.6% growth. In Q4 2015 household spending grew 2.9% year-on-year. Government expenditure was 1.9% higher in Q1, according to final data, while the second estimate pointed to a 2.1% increase. In Q4 government spending rose 1.9% year-on-year. Gross fixed capital formation increased at a final 0.7% in Q1, slowing down from a 1.1% surge in the second estimate and a 2.3% expansion in Q4 2015. It has been the worst performance since Q1 2013, when a 2.0% drop was reported.
At the same time, UK exports climbed 2.3% in Q1, accelerating from a 2.1% increase, as reported previously, while slowing down from a 4.8% surge in Q4 2015. The nations imports went up at a final 1.7% in Q1, slowing down from a 2.0% surge in the second estimate and following a 5.5% expansion in Q4 2015, the Office for National Statistics said.
On a quarterly basis, the preliminary estimate of UK GDP probably showed a 0.4% growth during Q2 2016, according to market expectations, which would match the final rate of GDP growth during the first three months of the year.
In case growth rate in Q2 came below market expectations, this would mount a heavy selling pressure on the Sterling. The Office for National Statistics is expected to release the preliminary GDP estimate at 8:30 GMT.
United States
Durable Goods Orders
The value of durable goods orders in the United States probably decreased for a second straight month in June, going down 1.1% from a month ago, according to the median forecast by experts. In May orders fell at a revised up monthly rate of 2.3% (-2.2% previously).
The value of shipments of manufactured durable goods, down in three out of the past four months, shrank 0.2% (or USD 0.5 billion) in May to reach USD 231.7 billion. The value of unfilled orders for manufactured durable goods, up in four out of the past five months, rose 0.2% (or USD 2.0 billion) in May to reach USD 1,139.4 billion. At the same time, the value of inventories of manufactured durable goods, down in ten out of the past eleven months, shrank 0.3% (or USD 1.1 billion) during the period to USD 382.5 billion, according to data by the US Census Bureau.
Non-defense new orders for capital goods dropped 0.8% (or USD 0.6 billion) in May to USD 73.8 billion, while defense new orders for capital goods slumped 28.0% (or USD 3.7 billion) during the month to USD 9.5 billion.
The value of durable goods orders, excluding transportation, probably rose 0.3% in June from a month ago, according to expectations, following an unrevised 0.3% drop in May.
In case the general index fell at a faster-than-projected pace, this would have a strong bearish effect on the US dollar, due to negative implications in regard to the wider gauge of production, factory orders. The US Census Bureau is scheduled to release the official report at 12:30 GMT.
Pending Home Sales
The index of pending home sales in the United States probably rose 1.4% in June from a month ago, according to the median estimate by experts. In May pending home sales dropped 3.7%, or the most since December 2013, when sales fell at a revised down monthly rate of 5.8%.
In annual terms, contracts to buy previously owned homes in the United States were 0.2% fewer in May, after a 4.6% surge in April. It has been the first annual drop since August 2014.
In case pending home sales increased at a faster pace than anticipated in June, this would have a moderate bullish effect on the US dollar. The National Association of Realtor’s (NAR) will report on the official index performance at 14:00 GMT.
FOMC policy decision
The Federal Open Market Committee (FOMC) will probably keep the target range for the federal funds rate intact between 0.25% and 0.50% at its two-day policy meeting, scheduled to be concluded today, according to the median forecast by experts.
In December 2015 the Committee raised borrowing costs by 25 basis points to the current 0.500% level for the first time in 55 policy meetings.
In June the target range was left intact. Policy makers revised down their GDP estimate for 2016 and 2017, but revised up their PCE inflation estimate regarding 2016. Economy is now projected to expand 2.0% in 2016 (down from 2.2% as expected previously) and by another 2.0% in 2017 (down from 2.1% as expected in March). The Personal Consumption Expenditure Price Index is now projected to rise 1.4% in 2016 (up from a 1.2% surge as expected in March) and by 1.9% in 2017 (unchanged from the March estimate).
According to the FOMCs Policy Statement released in June: ”Information received since the Federal Open Market Committee met in April indicates that the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up. Although the unemployment rate has declined, job gains have diminished. Growth in household spending has strengthened. Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been soft. Inflation has continued to run below the Committees 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports.”
The Minutes from the FOMCs meeting on June 14th-15th underscored concerns over the risks coming from an eventual Brexit. ”An additional factor in the Committees policy deliberations was the upcoming U.K. referendum on membership in the European Union. Members noted the considerable uncertainty about the outcome of the vote and its potential economic and financial market consequences. They indicated that they would closely monitor developments associated with the referendum as well as other global economic and financial developments that could affect the U.S. outlook”, the Minutes stated.
”Members generally agreed that, before assessing whether another step in removing monetary accommodation was warranted, it was prudent to wait for additional data regarding labor market conditions as well as information that would allow them to assess the consequences of the U.K. vote for global financial conditions and the U.S. economic outlook. They judged that their decisions about the appropriate level of the federal funds rate in coming months would depend importantly on whether incoming information corroborated the Committees expectations for economic activity, the labor market, and inflation.”
The FOMC will announce its official decision on policy at 18:00 GMT.
Bond Yield Spread
The yield on UK 2-year government bonds went as high as 0.186% on July 26th, after which it closed at 0.175% to add 3.4 basis points (0.034 percentage point) compared to July 25th.
Meanwhile, the yield on US 2-year government bonds climbed as high as 0.778% on July 26th, or the highest level since June 23rd (0.787%), after which it fell to 0.758% at the close to add 1.9 basis points (0.019 percentage point) compared to July 25th.
The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, narrowed to 0.583% on July 26th from 0.598% on July 25th. The July 26th yield spread has been the lowest one since July 22nd, when the difference was 0.572%.
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 – 1.3143
R2 – 1.3153
R3 (Range Resistance – Sell) – 1.3164
R4 (Long Breakout) – 1.3195
R5 (Breakout Target 1) – 1.3232
R6 (Breakout Target 2) – 1.3248
S1 – 1.3121
S2 – 1.3111
S3 (Range Support – Buy) – 1.3100
S4 (Short Breakout) – 1.3069
S5 (Breakout Target 1) – 1.3032
S6 (Breakout Target 2) – 1.3016
By using the traditional method of calculation, the weekly levels of importance for GBP/USD are presented as follows:
Central Pivot Point – 1.3163
R1 – 1.3264
R2 – 1.3418
R3 – 1.3519
R4 – 1.3621
S1 – 1.3009
S2 – 1.2908
S3 – 1.2754
S4 – 1.2601
In monthly terms, for GBP/USD we have the following pivots:
Central Pivot Point – 1.3817
R1 – 1.4517
R2 – 1.5722
R3 – 1.6422
R4 – 1.7121
S1 – 1.2612
S2 – 1.1912
S3 – 1.0707
S4 – 0.9501
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