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Forex Market: GBP/USD daily trading forecast

Yesterday’s trade saw GBP/USD within the range of 1.5201-1.5402. The pair closed at 1.5206, plummeting 1.15% on a daily basis, or at the steepest rate since August 26th, when it depreciated 1.46%. The daily low has been the lowest level since October 13th, when the cross registered a low of 1.5198.

At 8:08 GMT today GBP/USD was losing 0.13% for the day to trade at 1.5187. The pair touched a daily low at 1.5183 at 7:00 GMT, overshooting the daily S1 level. It has been the lowest level since October 6th, when a daily low of 1.5137 was reached.

Today GBP/USD trading may be influenced by a number of macroeconomic reports as listed below.

Fundamentals

United Kingdom

Industrial, Manufacturing Production

Annualized industrial production in the United Kingdom probably expanded 1.3% in September, according to market expectations, following a 1.9% gain during the preceding month. If so, this would be the 24th consecutive month, when the annual production index rose. In monthly terms, industrial production probably shrank 0.1% in September, according to expectations, following a 1.0% surge in August. The latter has been the sharpest monthly rate of increase since June 2013, when production rose 1.3%. The index measures the change in the total inflation-adjusted value of production in sectors such as manufacturing, mining and utilities. Higher rates of increase in industrial production may imply inflationary pressure.

United Kingdom’s annualized manufacturing production, a short-term indicator which accounts for almost 80% of the nation’s industrial output, probably shrank for a third straight month in September, going down 0.9%, according to the median forecast by analysts. If so, this would be the sharpest annual slump in production since May 2013, when it shrank 2.9%. In August manufacturing output fell at an annualized rate of 0.8%. In monthly terms, production probably grew 0.2% in September, according to expectations, following another 0.5% gain in August. As it is a key component of the country’s Gross Domestic Product, in case annual manufacturing production contracted more than projected, this would have a moderate bearish effect on the sterling. The Office for National Statistics (ONS) will release the official industrial data at 9:30 GMT.

Goods Trade Balance

The deficit on United Kingdom’s goods trade balance probably narrowed to GBP 11.000 billion in September, according to market expectations, from a deficit figure of GBP 11.149 billion during the preceding month. The latter has been the most considerable trade deficit in at least 8 years.

This indicator is also known as visible trade balance, because it reflects the difference in value between exported and imported physical goods, without the inclusion of exported and imported services. Since UK economy is to a great extent dependent on trade, the visible trade balance is considered as a key factor, providing clues over the sustainability of economic growth.

The gap on the nations total trade balance narrowed to GBP 3.268 billion in August from a revised up GBP 4.436 billion deficit posted in July. The August deficit was a result of record high automobile sales and higher exports of chemical products.

In August, exports went up by GBP 0.8 billion (or 1.9%) to reach GBP 42.3 billion, with all of the increase attributed to goods, specifically automobiles (up GBP 0.6 billion) and chemicals (up GBP 0.5 billion), according to the report by the Office for National Statistics (ONS). UK imports shrank by GBP 0.4 billion to GBP 45.6 billion during the same month. The decline reflected a GBP 0.1 billion drop in the import of services and a GBP 0.3 billion drop in the imports of goods.

In case the UK trade deficit narrowed more than anticipated, this would have a moderate bullish effect on the sterling. The Office for National Statistics will publish the official trade data at 9:30 GMT.

GDP estimate by the NIESR

At 15:00 GMT the National Institute of Economic and Social Research (NIESR) will release its estimate in regard to UK Gross Domestic Product over the three months to October. During the three-month period to September the NIESR estimate pointed to a 0.5% GDP growth. The report is considered as highly reliable and usually heightens volatility of the pound crosses.

United States

Non-farm Payrolls, Unemployment rate, Average Hourly Earnings

Employers in all sectors of economy in the United States, excluding the farming industry, probably added 180 000 new jobs in October, according to the median forecast by experts, after a job gain of 142 000 in September. The latter has been the lowest figure since March 2015, when 126 000 new jobs were added.

Employment in health care and social assistance increased by 34 000 jobs in September, while professional and business services sector added 31 000 jobs. Retail trade added 24 000 positions, while employment in food services and drinking places expanded by 21 000. On the other hand, employment in the mining industry continued to decrease in September (-10 000), while employment in sectors such as construction, manufacturing, wholesale trade, transportation and warehousing, financial activities and government remained almost unchanged during the month, according to the report by the Bureau of Labor Statistics (BLS).

The non-farm payrolls report presents the total number of US employees in any business, excluding the following four groups: farm employees, general government employees, employees of non-profit organizations, private household employees. The reading, released most often, varies between 10 000 and as much as 250 000 – 300 000 at times when economy is performing well. Despite the volatility and the possibility of large revisions, the non-farm payrolls indicator presents the most timely and comprehensive reflection of the current economic state. Total non-farm payrolls account for 80% of the workers, who produce the entire Gross Domestic Product of the United States. In case of a larger-than-expected gain in jobs in October, demand for the US dollar would be strongly supported.

Average Hourly Earnings probably increased 0.2% in October compared to the prior month, according to market expectations, after remaining flat in September.

The rate of unemployment in the country probably remained steady at 5.1% for a third consecutive month in September, according to expectations. It has been the lowest level since April 2008, when a rate of 5.0% was reported.

The total number of people unemployed shrank to 7.9 million in September from 8.0 million in August. The unemployment rate for adult men (4.7%), adult women (4.6%), teenagers (16.3%), whites (4.4%), blacks (9.2%), Asians (3.6%), and Hispanics (6.4%) showed little or no change during the month. The number of people unemployed for less than 5 weeks increased by 268 000 to 2.4 million in September, while the number of long-term unemployed (those looking for employment for 27 weeks or more) dropped to 2.1 million during the month from 2.2 million in August and comprised 26.6% of the unemployed, according to the BLS.

In case the unemployment rate met expectations or even fell further, this would have a strong bullish effect on the greenback, because of the positive implications for consumer spending. The Bureau of Labor Statistics will release the official employment data at 13:30 GMT.

Bond Yield Spread

The yield on UK 2-year government bonds went as high as 0.740% on November 5th, or the highest level since August 31st (0.770%), after which it closed at 0.687% to lose 3.7 basis points (0.037 percentage point) compared to November 4th. It has been the first drop in the past four trading days.

The yield on US 2-year government bonds climbed as high as 0.861% on November 5th, or the highest level in at least ten months, after which it closed at 0.834% to add 1.8 basis points (0.018 percentage point) compared to November 4th, while marking a fourth trading day of gains in a row.

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, widened to 0.147% on November 5th from 0.092% on November 4th. The November 5th yield spread has been the largest one since October 28th, when the difference was 0.162%.

Meanwhile, the yield on UK 10-year government bonds soared as high as 2.013% on November 5th, or the highest level since July 23rd (2.041%), after which it slid to 1.968% at the close to lose 3 basis points (0.03 percentage point) compared to November 4th. It has been the first drop in the past four trading days.

The yield on US 10-year government bonds climbed as high as 2.263% on November 5th, or the highest level since September 17th (2.298%), after which it slipped to 2.236% at the close to add 0.009 percentage point compared to November 4th, while marking a fourth consecutive trading day of gains.

The spread between 10-year US and 10-year UK bond yields widened to 0.268% on November 5th from 0.229% on November 4th. The November 5th yield difference has been the largest one since October 28th, when the spread was 0.300%.

Daily and Weekly Pivot Levels

By employing the Camarilla calculation method, the daily pivot levels for GBP/USD are presented as follows:

R1 – 1.5224
R2 – 1.5243
R3 (range resistance) – 1.5261
R4 (range breakout) – 1.5317

S1 – 1.5188
S2 – 1.5169
S3 (range support) – 1.5151
S4 (range breakout) – 1.5095

By using the traditional method of calculation, the weekly pivot levels for GBP/USD are presented as follows:

Central Pivot Point – 1.5379
R1 – 1.5518
R2 – 1.5607
R3 – 1.5746

S1 – 1.5290
S2 – 1.5151
S3 – 1.5062

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