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Forex Market: GBP/USD trading outlook for September 1st 2016

Yesterday’s trade (in GMT terms) saw GBP/USD within the range of 1.3065-1.3158. The pair closed at 1.3139, edging up 0.43% compared to Tuesdays close. It has been the 149th gain in the past 328 trading days. The daily high has been a level unseen since August 26th, when a high of 1.3279 was registered. The major pair depreciated 0.72% in August, after losing another 0.59% of its value in July.

At 7:06 GMT today GBP/USD was edging up 0.10% on the day to trade at 1.3152. The pair touched a daily high at 1.3155 during the late phase of the Asian trading session, undershooting the daily R2 level, and a daily low at 1.3129 during early Asian trade.

On Thursday GBP/USD trading may be influenced by the following macroeconomic reports and other events as listed below.


United Kingdom

Manufacturing PMI by Markit/CIPS

Activity in United Kingdom’s sector of manufacturing probably shrank for a second consecutive month in August, with the corresponding Purchasing Managers’ Index coming in at a reading of 49.0, according to the median forecast by experts, up from a final 48.2 in July. The latter has been the lowest reading since February 2013, as the sub-gauges of output and new orders both decreased for a second straight month in July. In addition, the sub-index of employment dropped for the seventh consecutive month in July, with the rate being the second-steepest in almost 3.5 years.

The index is based on a survey, encompassing managers of companies, operating in sectors such as manufacturing, mining, utilities. They are asked about their estimate in regard to current business conditions in the sector in terms of new orders, output, employment, demand in the future. Values below 50.0 signify that respondents are rather pessimists about business conditions in the sector than optimists.

In case, however, the PMI improved more than projected in August, this would have a strong bullish effect on the Sterling. The Chartered Institute of Purchasing and Supply (CIPS) is expected to release the official PMI reading at 8:30 GMT.

United States

Initial, Continuing Jobless Claims

The number of people in the United States, who filed for unemployment assistance for the first time during the business week ended on August 26th, probably rose to 265 000, according to market consensus, from 261 000 in the preceding week. The latter has been the lowest number of claims since the business week ended on July 15th, when the revised down 252 000 claims were reported.

The 4-week moving average, an indicator lacking seasonal effects, was 264 000, marking a decrease by 1 250 compared to the preceding week’s unrevised average.

The business week, which ended on August 19th, has been the 77th consecutive week, when jobless claims stood below the 300 000 threshold, which suggested a healthy labor market. It has been the longest streak since 1970.

Initial jobless claims number is a short-term indicator, reflecting lay-offs in the country. In case the number of claims met expectations or increased further, this would have a moderate bearish effect on the US dollar.

The number of continuing jobless claims probably remained stable at the seasonally adjusted 2 145 000 during the business week ended on August 19th, according to the median forecast by experts. The latter represented a drop by 30 000 compared to the unrevised number of claims reported in the week ended on August 5th. This indicator reflects the actual number of people unemployed and currently receiving unemployment benefits, who filed for unemployment assistance at least two weeks ago.

The US Department of Labor is to release the weekly report at 12:30 GMT.

Manufacturing PMI by Markit – final reading

The final estimate of the Manufacturing Purchasing Managers’ Index for August probably confirmed the preliminary reading of 52.1, according to the median forecast by analysts. In July the final seasonally adjusted PMI stood at 52.9, confirming the preliminary reading. It has been the highest PMI level since October 2015, when a final 54.1 was reported.

According to the preliminary report by Markit, ”U.S. manufacturers signalled increased output for the third month running in August. Furthermore, the rate of expansion remained solid overall, having edged up slightly from July to a nine-month high. Anecdotal evidence suggested that new product launches, stronger underlying demand and new marketing strategies had supported production growth in August.”

”Although solid growth of output was sustained, total new orders expanded at a slower rate in August. Data indicated that relatively subdued domestic demand was a reason behind softer growth in overall new work, as export sales increased at the fastest pace in 23 months.”

”Manufacturing employment increased only slightly during August. Furthermore, it was the weakest rate of payroll growth seen for four months. Greater staff numbers were generally linked to higher amounts of new work. At the same time, other firms mentioned that efforts to raise efficiency had weighed on overall jobs growth”, Markit stated.

Values above the key level of 50.0 indicate predominant optimism (expanding activity). In case the final PMI for August outstripped market expectations, this would lead to a moderate bullish impact on the US dollar. The final reading is due out at 13:45 GMT.

Manufacturing PMI by the ISM

Activity in United States’ manufacturing sector probably increased at a slower pace in August, with the corresponding manufacturing PMI coming in at a reading of 52.0, according to market expectations, down from 52.6 in July. If so, this would be the sixth consecutive month of expansion, which followed four successive months of contraction.

The New Orders Index came in at 56.9 in July, slipping from 57.0 in June. The sub-gauge of production was reported at 55.4 in July, accelerating from 54.7 in the preceding month. The index of employment fell to a value of 49.4 in July from 50.4 in the previous month. The gauge of prices was at 55.0 in July, falling from 60.5 in June, which suggested higher prices of raw materials for a fifth straight month, but also a slower rate. In July, out of a total of 18 manufacturing industries, 11 reported growth and 7 reported contraction of overall business activity, according to the report by the Institute for Supply Management (ISM).

Readings above the key level of 50.0 are indicative of expanding activity in the sector of manufacturing. In case, however, the PMI slowed down more than anticipated in August, this would have a strong bearish effect on the US dollar. The Institute for Supply Management (ISM) is to release the official reading at 14:00 GMT.

Fed’s Mester statement

At 16:25 GMT the Fed President for Cleveland and also a FOMC member, Loretta Mester, is expected to take a statement. Any remarks in regard to the central bank’s policy stance or the US economic outlook would heighten USD volatility.

Bond Yield Spread

The yield on UK 2-year government bonds went as high as 0.178% on August 31st, after which it closed at 0.162% to add 0.009 percentage point compared to August 30th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.817% on August 31st, after which it fell to 0.809% at the close to add 0.004 percentage point compared to August 30th.

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, narrowed to 0.647% on August 31st from 0.652% on August 30th. The August 31st yield spread has been the lowest one since August 29th, when the difference was 0.641%.

Daily, Weekly and Monthly Pivot Levels

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

R1 – 1.3148
R2 – 1.3156
R3 (Range Resistance – Sell) – 1.3165
R4 (Long Breakout) – 1.3190
R5 (Breakout Target 1) – 1.3220
R6 (Breakout Target 2) – 1.3233

S1 – 1.3130
S2 – 1.3122
S3 (Range Support – Buy) – 1.3113
S4 (Short Breakout) – 1.3088
S5 (Breakout Target 1) – 1.3058
S6 (Breakout Target 2) – 1.3045

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

Central Pivot Point – 1.3150
R1 – 1.3267
R2 – 1.3395
R3 – 1.3512
R4 – 1.3628

S1 – 1.3022
S2 – 1.2905
S3 – 1.2777
S4 – 1.2648

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

Central Pivot Point – 1.3126
R1 – 1.3387
R2 – 1.3634
R3 – 1.3895
R4 – 1.4155

S1 – 1.2879
S2 – 1.2618
S3 – 1.2371
S4 – 1.2123 is a financial media specialized in providing daily news and education covering Forex, equities and commodities. Our academies for traders cover Forex, Price Action and Social Trading.

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