GBPUSD news - page 47
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Looming Election and GDP Figures Weigh on Sterling
The past week has been a volatile one on the forex markets as the UK, US and Eurozone have all taken turns in the spotlight. We started out with news from the continent, as Greece continued to squabble with its creditors who refused to relax their repayment terms.
Attention shifted to the UK on Tuesday, as the first estimate of Q1 GDP was published. Despite expectations of a +0.5% reading, it came in at a disappointing +0.3%, which immediately harmed the Pound across the board, though losses against some currencies were recouped.
The US was back in focus on Wednesday as they too published a disappointing GDP number; +0.2% compared to an expectation of +1.0%, and the under-fire Greenback hit recent lows against both Sterling and the common currency. Later on Wednesday we saw the Fed stick to their guns with no policy amendments. Most analysts are now expecting to see a rate hike in September.
We also saw Greece receive more emergency liquidity funding in the shape of another loan from the European Central Bank, removing any short term fears of an imminent default in May. This cannot continue forever, and a long-term sustainable solution remains elusive.
In election related news, we saw David Cameron finally turn up to a leaders’ debate, with most polls picking him as the winner over Miliband and Clegg. Nigel Farage continued his mission to alienate audiences wherever he went, and UKIP are now falling away as serious contenders in a number of ridings.
It’s a quiet start to next week with a bank holiday in the UK on Monday, however Thursday’s UK General Election and Friday’s American Non-Farm Payroll (NFP) results will give FX market plenty to trade on.
Thursday’s UK Election is being called the most uncertain in a generation and given that it’s flown largely under the radar thus far it presents serious downside tail-risk for Sterling next week. Polling suggests that the incumbent Conservatives and challenger Labour; whom are the two traditional government forming parties, are locked in a neck-and-neck battle for pole position. However neither are expected to win enough seats in parliament to form government on their own. This means that the victor would need to form a coalition with any one of 4 or 5 peripheral parties to make government. Thus at first blush there are 8-10 likely possible outcomes on May 7th, each iteration of which has its own unique influence over the direction of British politics.
One only needs to look back to the Scottish Independence referendum this past autumn to gain insight into how FX markets tend to discount political uncertainty with respects to valuing the British Pound—especially against the Greenback. GBPUSD gave up 5-cents in the course of a week in early September when surveys suggested there was a possibly of an independent Scotland. It is surprising to think that GBPUSD has rallied over 8-cents in the last couple of weeks to multi-month highs. Especially given that the outcome of this election could see the Scotland question as well as the future European Union membership both revisited. As such the risks of sudden and extreme swings in Sterling pairs seems elevated.
On Friday, April American employment statistics will be published. Expectations are that the unemployment rate in the world’s largest economy edged down a notch to 5.4%, marking a fresh 8-year low. While this is an encouraging number, financial markets won’t be uncorking the Champagne until they’ve seen the NFP results. Last month’s dismal reading of +126k versus expectations of around +250k was a cause for concern. Expectations this month are for a +205k outcome, a result of at least that will be required to help alleviate fears that the American labor sector might be softening. Given the raft of disappointing economic data out of the United States lately (GDP, employment, Durable Goods…) the Big Dollar is likely to be particularly sensitive to a miss.
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GBP/USD forecast for the week of May 4, 2015
The GBP/USD pair broke higher during the course of the week, slamming into the 1.55 level. This level was significant resistance, and an area that we figured that once we broke out to the upside we would aim for. However, you can see that the sellers stepped in and push this market much lower. Ultimately, we ended up forming a massive and wicked looking shooting star. That shooting star suggests that the British pound made turned back around now. The 1.52 level was supposed to be supportive, and we broke down slightly below there so we will have to see how this plays out.
We are still in a downtrend, and that had not changed. We recognize that the 1.55 level was not only a large, round, psychologically significant number, but it was also the 38.2% Fibonacci retracement. Because of this, we believe that the longer-term traders got involved and started selling again, as British economic numbers on Friday weren’t exactly on fire. This was a pretty volatile week, and a lot of people probably lost quite a bit of money. However, this proves that you should never ignore the longer-term trend, because quite frankly pain attention to that would’ve saved you this week.
Going forward, if we can break below the bottom of the candle, we believe that we will head to the 1.50 level looking for support. Below there, we should head back down towards the lows which were somewhere near the 1.46 region. Quite frankly, there is still a lot of uncertainty out there and it’s difficult to imagine that the US dollar will be sold off for any real length of time. Even his biggest this move has been, it’s only been over the course of 3 weeks. Adding to that, the third week ended up being a complete bust. With this, we believe that the sellers will continue to punish the British pound going forward, and the US dollar will continue to be favored against most currencies out there, with of course the British pound being no different.
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GBP/USD Forecast May 4-8
The British pound jumped close to 1.55, but was unable to consolidate at these levels and closed the week with slight losses. The pair closed at 1.5123. This week’s highlights are PMI reports and the parliamentary election. Here is an outlook on the major events moving the pound and an updated technical analysis for GBP/USD.
US numbers disappointed last week, as Consumer Confidence and Manufacturing PMI reports fell short of expectations. In the UK, Preliminary GDP was weaker than expected, and the pound slid on Friday after a dismal reading from Manufacturing PMI.
* All times are GMT
GBP/USD: Pound Near 1-Week Low Ahead of Busy Week
The pound was seen hovering close to last session's one-week low against the US dollar on Monday, with the pair showing little volatility as the UK remains closed for May Day, while the US schedule only holds factory orders and several Federal Reserve (Fed) speakers.
Cable ticked down 0.04% to $1.5127 during the European session on Monday, near Friday's one-week low $1.5114.
"This week’s UK general election (to be held on May 7) will likely dominate over the UK economic data in the week ahead. The latest pre-election maneuvering suggests the contours of a potential coalition remain quite vague implying that uncertainty could persist after the election results are announced. Recent polls continue to point to the Conservative and Labour parties as neck-to-neck, and to a hung parliament. Given this, our view is that the GBP is vulnerable into and in the aftermath of the election result, until after the formation of a new government. We continue to recommend positioning for upside in EURGBP via options (sell 1 month EURGBP 0.700 put strike, Buy 3 month 0.7200 call strike); a recommendation which continues to perform," analysts at BNP Paribas wrote in a note on Monday.
On Tuesday, the major event for the pound will be the construction PMI, which is predicted to ease from 57.8 to 57.4, while on Wednesday, traders anticipate a slightly weaker services PMI.
US factory orders are expected to rise 2% in March, which would be a strong rebound from the 0.2% growth posted for February.
For the week ahead, the major market mover is expected to be Friday's no-farm payrolls report that will say more about the strength of the country's labor market.
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GBP/USD: Trading the British Services PMI
The British Services PMI (Purchasing Managers’ Index) is based on a survey of purchasing managers in the services sector. Respondents are surveyed for their view of the economy and business conditions in the UK. A reading which is higher than the market forecast is bullish for the pound.
Here are all the details, and 5 possible outcomes for GBP/USD.
Published on Wednesday at 8:30 GMT.
Indicator Background
Market analysts are always interested in the views of purchase managers on the economy, as the latter are considered to be attuned to the latest economic and financial developments, and their expectations could be an indication of future economic trends.
The index continues to post figures well above the 50 level, pointing to continuing expansion in the services sector. The indicator improved to 58.9 points in March, well above the estimate of 57.1 points. The markets are expecting more of the same in the upcoming release, with an estimate of 58.6 points.
Sentiments and levels
The British election is too tight to call, and the uncertainty could result in some volatility from the pair during the week. Although US numbers have hit some turbulence, the dollar held its own last week against the pound. So, the overall sentiment is neutral on GBP/USD towards this release.
Technical levels, from top to bottom: 1.5459, 1.53, 1.5215, 1.5114, 1.5008 and 1.4813.
5 Scenarios
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UK Markit/CIPS construction PMI April 54.2 vs 57.4 exp
Another big miss, lowest level in almost 2 years after mftg PMI last week
GBPUSD down to 1.5095 but finding bids on the dips again as EURGBP rally limited to 0.7333 so far
More from Morgan Stanley - See GBPUSD down to 1.3900 on prolonged election uncertaint
There's one for you all to have a good ol' discussion about! And yes I do tend to concur that there is still great uncertainty over Thursday's outcome
GBP/USD: Sterling Back Above $1.52 Ahead of UK Services PMI
Sterling added overnight gains versus the dollar on Wednesday as traders eagerly await the UK services PMI ahead of Thursday’s UK general election.
The pound recovered somewhat after a disappointing April manufacturing PMI on Friday, which saw the indicator hit a seven-month low. The UK services PMI in April is also expected to tick slightly down to 58.6 from the 58.9 booked in the previous cycle.
"The latest April data has been disappointing for both manufacturing and construction, both coming in at multi month lows. The weak numbers have been put down to businesses delaying investment decisions ahead of this week’s electoral vote, understandable given the prospect of a messy and uncertain outcome. This suggests that today’s April services number could be similarly weak, with expectations probably on the optimistic side at 58.6, down from 58.9 in March," Michael Hewson from CMC Markets UK wrote on Wednesday.
Sterling added 0.16% to $1.5202, easing a bit from the $1.5216 overnight high seen earlier.
In the US, key focus will be on US ADP non-farm employment data followed by a speech from Federal Reserve Chair Janet Yellen in Washington, which may provide fresh incentives on the US dollar moves.
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UK Services Activity Hits 8-Month High in April: PMI
The UK services sector, accounting for a major 78% of the whole economy, again stayed comfortably above the contraction line for the 28th consecutive month in April as the Markit/CIPS PMI measure jumped to 59.5, up from the previous month's 58.9, and above the estimate of 58.5.
"The PMI surveys suggest the economy is showing robust growth momentum, expanding at a rate of 0.8% at the start of the second quarter. As such, it looks like the economy has rebounded from the weakness seen at the start of the year," Markit chief economist Chris Williamson said.
"Fears of the economy slumping amid election jitters are allayed as an upturn in service sector activity has helped offset sharp slowdowns in both manufacturing and construction," he added.
According to the official figures, services sector suffered a sudden deceleration at the start of this year when the output in the sector slowed to 0.5% between the fourth quarter of last year and the first quarter this year. Weaker services were also the primary downward driver bringing the total GDP sharply down to 0.3% in the first quarter, half the growth seen in the previous three months.
Markit's two earlier releases showed both manufacturing and construction failed to impress at the start of the second quarter. Activity in the UK construction sector continued to weaken with the PMI hitting nearly two-year low in April. Markit said "the uncertain general election outcome appears to have put some grit in the wheels of decision making."
Despite a sudden slow-down in April, business activity in UK factories remained above the contraction line of 50, although the gap narrowed significantly to a seven-month low of 51.9. The sector was bolstered primarily by stronger domestic demand and lower production and import costs, while meager exports continued to hamper its full potential.
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GBP/USD: Sterling Trades in Narrow Range as UK Prepares for General Election
While the General Election kicks off in the UK with voting commencing, the pound maintains well as seen in recent months, well above 2015 lows on a trade weighted basis.
The cable currency pair was seen 0.03% higher at $1.5247 ahead of the opening bell.
"Today also sees the UK general election, which seems to offer the potential delights of either a minority Conservative government, which might lead closer to a Brexit; or a Labour government in coalition with the Scottish Nationalist Party; or a hung parliament and a potential constitutional crisis over who has the right to govern; or even fresh elections. That would appear to be a menu of options that will potentially offend almost everyone, so the market is perhaps right to remain skittish," Rabobank wrote in a research note on Thursday.
"Nonetheless, one has to say that with GBP back at 1.5240, as with EUR/USD trading over 1.13, the FX market’s stance is still “exit, shmexit” for now," Rabobank added.
Five years ago, back in 2010, the UK was on the cusp of one of the most uncertain election outcomes in years, with the UK finances a mess, and financial markets nervous about "the bed of nitro-glycerine" UK gilts were supposed to be sitting on.
"Contrast that situation to the one we face now and while plenty has changed for the better after five years of fairly stable coalition government, the state of the UK finances hasn’t, a fact that seems to have escaped nearly every politician from the main parties as they compete to bribe voters on extra spending for the NHS, price freezes and other such electoral bribes," Michael Hewson from CMC Markets UK wrote in a note on Thursday.
While yesterday’s April services PMI came in better than expected, it is a concern that both the construction and manufacturing sectors experienced a sharp slowdown, largely due to uncertainty over the outcome of today’s vote, as businesses delayed investment decisions.
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