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Forex Market: GBP/USD trading outlook for Tuesday (November 1st 2016)

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Yesterday’s trade (in GMT terms) saw GBP/USD within the range of 1.2144-1.2251. The pair closed at 1.2243, edging up 0.43% compared to Fridays close. It has been the 171st gain in the past 371 trading days and also a second consecutive one. The major pair depreciated 5.66% in October, after losing 1.23% in September.

At 8:18 GMT today GBP/USD was edging up 0.21% on the day to trade at 1.2269. The pair touched a daily high at 1.2276 during the early phase of the European trading session, overshooting the range resistance level (R3), and a daily low at 1.2211 during early Asian trade.

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

Fundamentals

United Kingdom

Manufacturing PMI by Markit/CIPS

Activity in United Kingdom’s sector of manufacturing probably expanded for a third consecutive month in October, with the corresponding Purchasing Managers’ Index coming in at a reading of 54.5, according to the median forecast by experts. In September, the PMI was reported at 55.4, which has been the highest reading since June 2014, supported by faster growth in the sub-indexes of output, new orders and employment. The domestic market remained a major driving force behind new business growth, while recent depreciation of the Sterling favored new orders from abroad.

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 above 50.0 signify that respondents are rather optimists about business conditions in the sector than pessimists.

In case, however, the PMI decelerated more than forecast in October, this would have a strong bearish effect on the Sterling. The Chartered Institute of Purchasing and Supply (CIPS) is expected to release the official PMI reading at 9:30 GMT.

United States

Manufacturing PMI by Markit – final reading

The final estimate of the Manufacturing Purchasing Managers’ Index for October probably confirmed the preliminary reading of 53.2, according to the median forecast by analysts. It has been the highest reading since October 2015, supported by faster output and new business growth. In September, the final seasonally adjusted PMI stood at 51.5, inching up from a preliminary 51.4.

According to the preliminary report by Markit, ”Survey respondents cited an accelerated pace of new business growth and, in some cases, efforts to boost production in anticipation of stronger client demand in the months ahead.”

”Meanwhile, new export orders increased only slightly in October, but this was an improvement on the fractional decline seen during the previous survey period. Manufacturers mainly cited strong competition and relatively subdued demand patterns across key global markets.”

”Higher levels of incoming new work resulted in a greater degree of backlog accumulation across the manufacturing sector during October. The latest rise in unfinished work was the largest for 12 months. Some firms commented on increased capacity pressures at their plants, in part reflecting subdued job hiring in recent months. Latest data signaled only a moderate rise in payroll numbers, and the rate of expansion was weaker than in September”, Markit stated.

Values above the key level of 50.0 indicate predominant optimism (expanding activity). In case the final PMI for October 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 expanded at a slightly faster pace in October, with the corresponding manufacturing PMI coming in at a reading of 51.7, according to market expectations. In September, the gauge rebounded from August’s seven-month low (49.4) to reach 51.5.

The New Orders Index came in at 55.1 in September, rebounding from 49.1 in August. The sub-gauge of production was reported at 52.8 in September, recovering from 49.6 in the preceding month. The index of employment improved to a value of 49.7 in September from 48.3 in the previous month. The gauge of prices was steady at 53.0 in September, which suggested higher prices of raw materials for a seventh straight month. In September, out of a total of 18 manufacturing industries, 7 reported an expansion, while 11 reported a contraction in 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 the PMI accelerated more than anticipated in October, this would have a strong bullish effect on the US dollar. The Institute for Supply Management is to release the official reading at 14:00 GMT.

Bond Yield Spread

The yield on UK 2-year government bonds went up as high as 0.310% on October 31st, after which it closed at 0.271% to lose 2.1 basis points (0.021 percentage point) compared to October 28th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.861% on October 31st, after which it fell to 0.853% at the close to lose 0.004 percentage point compared to October 28th.

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, widened to 0.582% on October 31st from 0.565% on October 28th. The October 31st yield spread has been the largest one since October 27th, when the difference was 0.595%.

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 – 1.2253
R2 – 1.2263
R3 (Range Resistance – Sell) – 1.2272
R4 (Long Breakout) – 1.2302
R5 (Breakout Target 1) – 1.2336
R6 (Breakout Target 2) – 1.2351

S1 – 1.2233
S2 – 1.2223
S3 (Range Support – Buy) – 1.2214
S4 (Short Breakout) – 1.2184
S5 (Breakout Target 1) – 1.2150
S6 (Breakout Target 2) – 1.2135

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

Central Pivot Point – 1.2182
R1 – 1.2282
R2 – 1.2373
R3 – 1.2473
R4 – 1.2572

S1 – 1.2091
S2 – 1.1991
S3 – 1.1900
S4 – 1.1808

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

Central Pivot Point – 1.2379
R1 – 1.2812
R2 – 1.3380
R3 – 1.3813
R4 – 1.4245

S1 – 1.1811
S2 – 1.1378
S3 – 1.0810
S4 – 1.0241

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