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Forex Market: GBP/USD daily trading outlook

Yesterday’s trade saw GBP/USD within the range of 1.4091-1.4219. The pair closed at 1.4118, plummeting 1.08% compared to Mondays close. It has been the 34th drop in the past 58 trading days. The daily low has been the lowest level since April 8th, when a low of 1.4038 was registered. The major pair has fallen 2.13% so far in June, following a 0.92% drop in the prior month.

At 6:24 GMT today GBP/USD was edging up 0.32% on the day to trade at 1.4163. The pair touched a daily high at 1.4174 at 6:18 GMT, undershooting the range breakout level (R4), and a daily low at 1.4095 during early Asian trade.

On Wednesday GBP/USD trading may be influenced by the following macroeconomic reports as listed below.

Fundamentals

United Kingdom

Jobless Claims, ILO Unemployment Rate

The number of jobless claims in the United Kingdom probably remained unchanged in May from a month ago, according to market expectations. In April claims were 2 400 fewer to 738 000, following a revised up increase by 14 700 in March. The latter has been the sharpest monthly increase since September 2011.

The rate of unemployment in the UK, estimated in accordance with ILO (International Labour Organization) standards, probably remained at 5.1% for a sixth consecutive three-month period during the three months to April compared to the same period a year ago. It has been the lowest rate since the three-month period to October 2005.

During the period January-March there were 31.58 million people in employment, or an increase by 44 000 compared to the three months to December 2015. Compared to January-March 2015, the figure represented an increase by 409 000. 23.12 million people were in full-time employment during the period January-March, or 328 000 more compared to the same period a year earlier. At the same time, 8.46 million people were in part-time employment, or an increase by 81 000 compared to a year ago. The rate of employment was registered at 74.2%, or the highest since 1971, when records were initiated.

During the period January-March, 1.69 million people were unemployed, or little changed compared to those reported during the three months to December 2015. Compared to January-March 2015, the figure represented a decrease by 139 000.

In January to March there were 8.90 million people aged between 16 and 64, who were out of work and not seeking or available for employment, according to data by the Office for National Statistics (ONS). This represented a decrease by 116 000 compared to the three-month period to March 2015.

Average earnings including bonuses probably went up 1.7% during the three months to April 2016 compared to the same period a year ago. In the three-month period to March 2016 earnings grew 2.0% year-on-year to GBP 499 per week. Pay growth has been above the rate of consumer inflation since the beginning of 2015, which led to a sound increase in real income. However, wage growth is still lower compared to the period preceding the financial crisis.

In case the rate of unemployment met expectations or fell even further while the number of claims met projections or even decreased in May, this would have a strong bullish effect on the Pound. The official report by the ONS is due out at 8:30 GMT.

United States

Producer Prices

Annual producer prices in the United States probably dipped 0.1% in May, according to the median estimate by experts, after remaining flat in April. The Producer Price Index reflects the change in prices of over 8 000 products, sold by manufacturers during the respective period. The PPI differs from the Consumer Price Index (CPI), which measures the change in prices from consumer’s perspective, due to subsidies, taxes and distribution costs of different types of manufacturers in the country. In case producers are forced to pay more for goods and services, they are more likely to pass these higher costs to the end consumer. Therefore, the PPI is considered as a leading indicator of consumer inflation. In case annual producer prices fell at a faster rate than anticipated, this would have a moderate bearish effect on the US dollar.

The nation’s annualized core producer price inflation, which excludes prices of volatile categories such as food and energy, probably accelerated 1.0% in May from 0.9% in April. The latter has been the smallest annual increase in the core PPI since January, when the index gained 0.6%. The Bureau of Labor Statistics is expected to report on the official PPI performance at 12:30 GMT.

New York Empire State Manufacturing Index

The New York Empire State Manufacturing Index probably improved to a value of -4.00 in June, according to the median forecast by experts, from -9.02 in May. The latter has been the lowest index reading since February, when the gauge was reported at -16.64.

In May, the gauge of new orders rose new orders slipped to -5.54 from 11.14 in the prior month, that of shipments fell to -1.94 from 10.17 in April, the sub-index for prices paid eased to 16.67 from 19.23 in April, while the sub-index for prices received dropped to -3.13 from 2.88 in the previous month. The six-month outlook was less optimistic in May compared to a month ago.

Readings below 0.00 are indicative of worsening business conditions in the region. However, a better-than-anticipated index performance will usually have a moderate bullish effect on the US dollar. The Federal Reserve Bank of New York is expected to release the official reading at 12:30 GMT.

Industrial Production

Industrial output in the United States probably shrank at a monthly rate of 0.2% in May, according to market expectations, following a 0.7% growth in the prior month, or the fastest since November 2014.

In April output in the US mining sector decreased 2.3%, dragged down by considerable cutbacks in oil and natural gas extraction, as well as reductions in coal mining and in oil and gas well drilling and servicing.

The gauge for utilities registered a 5.8% monthly surge in April, as demand for electricity and natural gas returned to normal levels.

Manufacturing production, which accounts for almost three quarters of total industrial production, expanded 0.3% in April, as production of durables increased 0.6%, while that of non-durables remained unchanged.

A larger-than-projected monthly decline in the index would usually have a moderate bearish effect on the US dollar. The Board of Governors of the Federal Reserve is to release the production data at 13:15 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 April the target range was left intact. Policy makers noted that labor market conditions improved, but overall economic activity seemed to have decelerated.

According to the FOMCs Policy Statement released in April: ”The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further.”

According to the Minutes from the FOMCs meeting on April 26th-27th: ”Participants generally agreed that the risks to the economic outlook posed by global economic and financial developments had receded over the intermeeting period. The public appeared to have interpreted Federal Reserve communications following the March FOMC meeting as indicating that achieving the Committees economic objectives would likely require a somewhat more gradual pace of increases in the federal funds rate than anticipated earlier.”

During her speech at the World Affairs Council of Philadelphia on June 6th, Fed Chair, Janet Yellen, said that despite the weak job growth in all US economic segments with the exclusion of the farming industry in May, an encouraging aspect of the latest payrolls report was that average hourly earnings increased 2.5% over the past 12 months, or slightly above performance in recent years. The latter, according to Yellen, may serve as an indication that wage growth in the country may finally be picking up. Yellen noted that the target for the federal funds rate will probably need to increase gradually over time, so that price stability and maximum sustainable employment in the longer run are ensured, but, however, she provided little or no indication over the timing for such a move.

The FOMC will announce its official decision on policy at 18:00 GMT. The rate decision will be followed by a press conference with the Fed Chair at 18:30 GMT. It will be closely examined by market participants and analysts for clues over the future path of interest rates.

Daily, Weekly and Monthly Pivot Levels

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

R1 – 1.4130
R2 – 1.4141
R3 (range resistance) – 1.4153
R4 (range breakout) – 1.4188

S1 – 1.4106
S2 – 1.4095
S3 (range support) – 1.4083
S4 (range breakout) – 1.4048

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

Central Pivot Point – 1.4360
R1 – 1.4543
R2 – 1.4828
R3 – 1.5011

S1 – 1.4075
S2 – 1.3892
S3 – 1.3607

In monthly terms, for GBP/USD we have the following pivots:

Central Pivot Point – 1.4526
R1 – 1.4722
R2 – 1.4966
R3 – 1.5162

S1 – 1.4282
S2 – 1.4086
S3 – 1.3842

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