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Forex Market: GBP/USD daily trading forecast

Friday’s trade saw GBP/USD within the range of 1.5465-1.5527. The pair closed at 1.5514, remaining unchanged on a daily basis. The daily low has also been the lowest level since July 14th, when a low of 1.5449 was reported. The cross fell 0.61% on a weekly basis, following a 0.53% gain in the prior week. The weekly rate of loss has been the sharpest one since the week, which began on June 28th, when GBP/USD depreciated 1.15%.

At 6:52 GMT today GBP/USD was up 0.10% for the day to trade at 1.5535. The pair broke the daily R1 level and touched a daily high at 1.5544 at 6:36 GMT.

Today GBP/USD may be influenced by a number of fundamentals as listed below.

Fundamentals

United Kingdom

CBI Industrial Orders

At 10:00 GMT the Confederation of British Industry (CBI) is to release the July results from its survey, encompassing 17 industries. The gauge of industrial orders in the United Kingdom fell to a reading of -7 during the three months to June, according to expectations, from -5 in the previous period. Junes reading has been the lowest one since the period to July 2013, when a value of -12 was reported. This indicator reflects the net balance between companies, that registered an increase in industrial orders during the respective period of three months and those, that registered a drop. It is the oldest indicator, released from the UK private sector, to show the development tendency in the countrys industrial sector. The Industrial Trends Survey by the Confederation of British Industry provides expert qualitative opinion from senior manufacturing executives, on past and expected trends in output, exports, prices, costs, investment intentions, business confidence and capacity utilization. A level above zero suggests that volume of orders is projected to increase, while a level below zero indicates that expectations point to lower volumes. If the survey showed predominant pessimism, this would have a limited bearish effect on the sterling.

United States

Durable Goods Orders

Durable goods orders in the United States probably increased 2.5% in June compared to a month ago, according to the median forecast by experts. In May new orders for manufactured durable goods declined at a pace of 1.8%, as transportation orders decreased the most, by 6.4% to reach USD 71.7 billion.

Shipments of manufactured durable goods shrank 0.1% to USD 239.9 billion in May, following a 0.2% drop in April. Inventories of manufactured durable goods fell 0.2% to USD 400.6 billion in May, following 23 consecutive months of increases. Unfilled orders for manufactured durable goods declined 0.5% to USD 1,195.5 billion in May, after a 0.2% drop in April, according to data by the US Census Bureau.

Durable goods orders, as an indicator, gauge the strength of US manufacturing sector and represent a major portion of the nations factory orders. This is a closely watched report on manufacturing activity, because durable goods are the first type of goods to be affected by an economic downturn or upturn.

Durable goods are designed to last three or more years and encompass aircraft, automobiles and buses, cranes, machine parts, appliances etc. More than 85 industries are represented in the sample, which covers the entire United States. The logic behind this indicator is that consumers need to be very optimistic in order to buy an automobile in comparison with, for example, first necessities such as food or clothing. Therefore, durable goods are among the first goods, which a consumer may abstain from purchasing, in case overall economic activity begins to contract. The same is valid for company purchases. During a recession, an airliner is less likely to purchase new aircraft and as factory output contracts, it is less likely to purchase new machines.

Durable goods orders, which exclude transportation, probably rose 0.3% in June. In April and May orders were up 0.5%, following six consecutive months of declines. Large ticket orders, such as automobiles for civil use or aircraft, are not present in the calculation, as their value may be in a wide range. This way the index provides a more reliable information in regard to orders for durable goods.

In case orders increased at a faster-than-projected pace, this would certainly have a bullish effect on the greenback. The US Census Bureau is scheduled to release the official data at 12:30 GMT.

Correlation with other Majors

Taking into account the week ended on July 26th 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 AUD/USD (0.5441, or strong)
GBP/USD to USD/JPY (0.3888, or moderate)
GBP/USD to USD/CHF (-0.2140, or weak)
GBP/USD to USD/CAD (-0.2243, or weak)
GBP/USD to NZD/USD (-0.3577, or moderate)
GBP/USD to EUR/USD (-0.4887, or moderate)

1. During the examined period GBP/USD moved strongly in one and the same direction with AUD/USD, while moving moderately in one and the same direction compared to USD/JPY.

2. GBP/USD moved to a moderate extent in the opposite direction compared to NZD/USD and EUR/USD during the past week.

3. The correlation between GBP/USD and USD/CHF, GBP/USD and USD/CAD was insignificant during the period in question.

Bond Yield Spread

The yield on UK 2-year government bonds went as high as 0.646% on July 24th, after which it slid to 0.619% at the close to lose 2.7 basis points (0.027 percentage point) on a daily basis. It has been the first loss in the past four trading days.

The yield on US 2-year government bonds climbed as high as 0.707% on July 24th, after which it fell to 0.682% at the close to lose 1.6 basis points (0.016 percentage point) for the day, while marking a second consecutive day of decrease.

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, shrank to 0.063% on July 24th from 0.074% during the prior day. The July 24th spread has been the most notable one since July 21st, when the difference was 0.052%.

Meanwhile, the yield on UK 10-year government bonds soared as high as 1.983% on July 24th, after which it slid to 1.947% at the close to lose 6.9 basis points (0.069 percentage point) compared to July 23rd, while marking a third straight day of decrease.

The yield on US 10-year government bonds climbed as high as 2.286% on July 24th, after which it slipped to 2.262% at the close to lose 0.007 percentage point on a daily basis, while marking a fourth consecutive day of decline.

The spread between 10-year US and 10-year UK bond yields widened to 0.315% on July 24th from 0.280% during the prior day. The July 24th yield difference has been the most significant one since July 13th, when the spread was 0.345%.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 1.5502. In case GBP/USD manages to breach the first resistance level at 1.5539, it will probably continue up to test 1.5564. In case the second key resistance is broken, the pair will probably attempt to advance to 1.5601.

If GBP/USD manages to breach the first key support at 1.5477, it will probably continue to slide and test 1.5440. With this second key support broken, the movement to the downside will probably continue to 1.5415.

The mid-Pivot levels for today are as follows: M1 – 1.5428, M2 – 1.5459, M3 – 1.5490, M4 – 1.5521, M5 – 1.5552, M6 – 1.5583.

In weekly terms, the central pivot point is at 1.5550. The three key resistance levels are as follows: R1 – 1.5636, R2 – 1.5757, R3 – 1.5843. The three key support levels are: S1 – 1.5429, S2 – 1.5343, S3 – 1.5222.

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