Friday’s trade saw GBP/USD within the range of 1.5302-1.5420. The pair closed at 1.5314, shedding 0.52% on a daily basis, while marking its fourth consecutive trading day of losses. The daily rate of decrease has been the steepest one since October 13th, when the pair fell 0.63%. The daily low, in addition, has been the lowest level since October 14th, when the cross registered a low of 1.5244. In weekly terms, GBP/USD lost 0.78% last week, following two consecutive weeks of gains. It has been the most considerable weekly decline since the week ended on September 27th, when the pair plummeted 2.25%.
At 9:02 GMT today GBP/USD was up 0.18% for the day to trade at 1.5337. The pair tested the range resistance level (R3), as it touched a daily high at 1.5344 at 8:35 GMT.
Today the cross may be influenced by a number of macroeconomic reports as listed below.
Fundamentals
United Kingdom
BBA Home Loans
At 9:30 GMT the British Bankers’ Association (BBA) is to report on the number of home loans issued in the United Kingdom during September. In August there were 46 743 loans issued, which has been the highest level since February 2014, when 47 600 loans were reported. The BBA features the major banks in the country, which account for almost 60% of overall mortgage lending. The number of mortgage loans is considered as a leading indicator in regard to UK housing market conditions. As growth in mortgage lending signifies a healthy housing sector, which also contributes to overall economic activity, a higher number of loans would have a moderate bullish effect on the sterling.
United States
New Home Sales
Sales of new single-family homes probably fell to the seasonally adjusted annual rate of 550 000 in September, according to market expectations, from 552 000 reported in August. The latter has been the highest level of sales since February 2008, when a figure of 575 000 was reported. Sales in the Northeast went up 24.1% in August, those in the South were up 7.4%, while sales in the West increased 5.4%. On the other hand, new home sales in the Midwest were 9.1% lower in August compared to a month ago.
The median sales price of new houses sold was USD 292 700 in August, while the average sales price was USD 353 400. At the end of the month, the seasonally adjusted estimate of new houses for sale was 216 000, which represents a supply of 4.7 months at the current sales rate, according to the report by the US Census Bureau.
This report has a significant influence on the Foreign Exchange market, because increasing new home sales can lead to a rise in consumption, for example. The new home sales index is also an excellent indicator of any economic downturns or upturns due to the sensitivity of consumers income. When, for instance, new home sales drop over several months, this usually is a precursor to an economic depression.
In case a lower-than-expected level of sales is reported, this would have a strong bullish impact on the US dollar. The Census Bureau is to report the official figure at 15:00 GMT.
Correlation with other Majors
Taking into account the week ended on October 25th 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 EUR/USD (0.8987, or very strong)
GBP/USD to AUD/USD (0.6488, or strong)
GBP/USD to NZD/USD (0.1418, or weak)
GBP/USD to USD/CAD (-0.7794, or strong)
GBP/USD to USD/CHF (-0.9238, or very strong)
GBP/USD to USD/JPY (-0.9823, or very strong)
1. During the examined period GBP/USD moved strongly in one and the same direction with AUD/USD, while moving strongly in the opposite direction compared to USD/CAD.
2. GBP/USD moved almost equally in one and the same direction with EUR/USD during the past week, while moving almost equally in the opposite direction in comparison with USD/CHF and USD/JPY. The correlation between GBP/USD and USD/JPY was almost perfect.
3. The correlation between GBP/USD and NZD/USD was insignificant during the period in question.
Bond Yield Spread
The yield on UK 2-year government bonds went as high as 0.597% on October 23rd, or the highest level since October 20th (0.606%), after which it closed at 0.571% to add 4.1 basis points (0.041 percentage point) compared to October 22nd. It has been the first gain in the past three trading days.
The yield on US 2-year government bonds climbed as high as 0.645% on October 23rd, or the highest level since October 9th (0.657%), after which it closed at the exact same level to add 4 basis points (0.04 percentage point) compared to October 22nd. It has been the first increase in the past three trading days.
The spread between 2-year US and 2-year UK bond yields narrowed to 0.074% on October 23rd from 0.075% on October 22nd. The October 23rd yield spread has been the lowest one since October 20th, when the difference was 0.055%.
Meanwhile, the yield on UK 10-year government bonds soared as high as 1.875% on October 23rd, or the highest level since October 20th (1.878%), after which it slid to 1.862% at the close to add 6.2 basis points (0.062 percentage point) compared to October 22nd. It has been the first increase in the past three trading days.
The yield on US 10-year government bonds climbed as high as 2.099% on October 23rd, or the highest level since October 9th (2.138%), after which it slipped to 2.087% at the close to add 5.9 basis points (0.059 percentage point) compared to October 22nd. It has been the first gain in the past three trading days.
The spread between 10-year US and 10-year UK bond yields narrowed to 0.225% on October 23rd from 0.228% on October 22nd. The October 23rd yield difference has been the lowest one since October 21st, when the spread was 0.225%.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for GBP/USD are presented as follows:
R1 – 1.5325
R2 – 1.5336
R3 (range resistance) – 1.5346
R4 (range breakout) – 1.5379
S1 – 1.5303
S2 – 1.5292
S3 (range support) – 1.5282
S4 (range breakout) – 1.5249
By using the traditional method of calculation, the weekly pivot levels for GBP/USD are presented as follows:
Central Pivot Point – 1.5374
R1 – 1.5447
R2 – 1.5579
R3 – 1.5652
S1 – 1.5242
S2 – 1.5169
S3 – 1.5037
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