GBP to be underpinned as analysts forecast UK economy to outpace Western rivals: Live Coverage on Mon 4th of Oct
The British pound sterling (Currency:GBP) starts Monday on a mixed note; however the currency is well supported. According to ICEAW and Grant Thornton this support will be underpinned by a strong economic performance for the remainder of the year. Our key event for today is the release of the Markit Construction PMI for October. We bring you this coverage and all that latest views and predictions on GBP.
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16:40: Can Manufacturing PMI deliver?
The GBP took a real shot of confidence from today's strong UK Construction PMI data.
Tomorrow it is the turn of the Services PMI due at 09:30.
Markets will be looking for a reading of 59.8, lower than last month's 60.3. A surprise higher should see GBP sitting pretty on the forex markets once more.
16:30: Don't chase the GBP-CAD selloff lower
GBP/CAD had a beautiful upward momentum until 7 trading sessions ago.
Shaun Osborne at TD Securities says he believes this is in all likelihood a decent correction lower:
"GBP/CAD’s sell-off has steadied around the October consolidation break out point. The corrective undertone that was established last week may have a little further to run but the slide last week did not, on the face of it (in technical terms) represent a reversal of the broader trend which we think remains higher. The longer-term structural underpinnings of this rally remain well-established so our bias is to look for opportunities to buy rather than chase the market lower from here. The buy zone may be a little nearer the big, bull break out point at 1.6500/10 though."
15:44: UK second only to China in Foreign Direct Investment stakes
According to the OECD, three countries received 47% of global FDI inflows in Q2 2013: China attracted the lion's share (USD 61 billion, or 21% of total) followed by the United Kingdom (USD 41 billion) and the United States (USD 38 billion).
FDI inflows increased for Australia (from USD 10 billion to USD 12 billion), the United Kingdom (from USD 34 billion to USD 41 billion), and the United States (from USD 29 billion to USD 38 billion).
This will certainly be one of the key underpinnings of Sterling over the second quarter.
15:23: A break above 1.6260 would likely extend GBP longs, 1.59 a good level for GBP bulls to buy at
More insights on the latest positioning data from the CFTC, this one from Lloyds Bank:
"Net non-commercial GBP positions continued to edge up in the week to October 22, but the CME data suggested that enthusiasm for GBP/USD was somewhat less pronounced than for EUR/USD.
"If we were to break through the year’s high at 1.6260, we suspect this would change, but the sharp (primarily EUR driven)
USD rally from last week has left this now a fairly distant target," says a note from Lloyds Bank Research.
"Even so, GBP/USD positioning is now probably close to flat, and still relatively strong UK data suggests that these levels near 1.59 may be a good area for GBP bulls to buy."
14:54: Newton’s first law explains why the pound is preferred to the euro
"It’s all about momentum. The US and the UK have it, the Eurozone does not. Last week saw more positive economic news, with UK and US manufacturing growing despite political brinkmanship in the US. House prices in both countries grew and there were signs that UK companies are beginning to borrow again. But in the Eurozone, unemployment remained unchanged at a record level and there was a nasty surprise as prices edged towards deflationary territory. Newton’s first law says that an object is either at rest or moves at a constant velocity, unless acted upon by an external force. The Eurozone could really use a bump." - Some economist at RBS. No name supplied!
14:04: Nearly time to sell GBP/USD?
Matt Weller at GFT tells us why he has the GBP/USD on his sell prospectus:
"Rates (GBPUSD) are ticking a bit higher in today’s early European trade. As the 4hr chart below shows, rates are approaching bearish trend line resistance on the 4hr chart, and any rallies toward the 1.60 handle today are likely to find resistance. Any rallies into the upper-1.5900s may present a favourable sell opportunity off this resistance zone.
"Specifically, traders could set a limit sell order at 1.5985 (near bearish trend line resistance and the 1.6000 round handle) with a stop at 1.6020 (back above this converging resistance zone) and a target at 1.5930 (ahead of the recent lows and key previous support from the daily chart)."
12:40: How are the speculators betting when it comes to GBP?
The CFTC continues catch up with unreleased reports due to the government shutdown in October.
Data on speculative positioning for the weeks through October 15th and 22nd have now been released, showing that currency speculators continued to shed exposure to the USD
Net long GBP position rose modestly over the two weeks to 12k contracts (Oct. 15), then 14k contracts (Oct. 22). What the below two graphs show is that GBP is maintaining an even keel without an overexposure either way.
This is a good sign from a stability perspective.
Images courtesy of Scotiabank and Bloomberg.
11:46: ECB rate cut is coming
The euro is looking good today; however the outlook is certainly challenged. The prospect of an interest rate cut at the ECB seems to be of concern to markets.
Kasper Kirkegaard at Danske Bank says December could see such a move:
"It now appears to be the consensus expectation that the ECB will cut the refi rate. However, only three of the 68 economists surveyed by Bloomberg expect the ECB to deliver already on Thursday, as the consensus view among those looking for a cut is that the ECB will wait until its December meeting."
11:12: Strong bearish momentum for EUR/GBP
"The major bearish engulfing candle put price around 0.8450 level, breaking the rising trend line for the latest bullish wave, and signaling a strong bearish momentum. Accordingly, the bearish scenario is favored this week." - ICN Financial.
11:03: Dollar domination this week?
Boris Schlossberg at BK Asset Management is predicting US dollar domination for the week starting Monday the 4th of November. Key reading as currency markets readjust:
10:37: GBP/EUR gains likely to continue
This time last week the theme on FX markets was a bullish euro. The opposite is true this week.
Sasha Nugent at CaxtonFX is predicting further losses for the EUR:
"With the euro in a more vulnerable position, sterling has the opportunity to take advantage this week and UK construction PMI should encourage more upwards movement in the GBPEUR rate.
"It is unlikely the single currency will be able to reverse losses today ahead of the ECB rate meeting and with strong UK number setting the tone for trading, the only way is up for GBPEUR."
10:00: GBP climbs
The UK Construction PMI release has aided a strengthening by sterling against most major currencies this morning.
09:30: Construction PMI beat expectations
Last Friday we saw Manufacturing PMI come in below expectations. Today however the construction sector has not failed us.
October's Construction PMI came in at 59.4. Analysts had predicted 58.9; better than last month's 58.9.
08:46: GBP/USD forecasted @ 1.57 come year end
UniCredit Bank today tell us they remain bearish on the pound vs US dollar rate moving into year end forecasting a notable move lower:
"Sterling has come under severe pressure lately and we expect this to continue in the short term. The 2Y swap differential (between the UK and the US) has narrowed from 42bp to around 36bp, and as a result our short-term fair-value model points to a correction towards the 1.55 level. We maintain our year-end forecast of 1.57."
08:34: Beware a strengthening US dollar
Expect this view to gain traction this week. Lloyds Bank Research today join that club:
"GBP/USD came under pressure on Friday, weighed further by some better-than-expected US numbers. While respective fundamentals suggest we should see GBP/USD higher, relative rates spreads have moved in favour of the USD over the past week (chart 1). Some relatively firm US data, and the Fed sounding less dovish than the market had anticipated at the FOMC has seen US yields higher. While UK data out this week will be important for GBP, unless we get stronger than expected data it will be difficult to trigger further GBP/USD gains; USD sentiment and US data will likely be the main driver."
08:16: UK economy tipped for strong end to 2013
We start Monday off on a positive: Accountancy body ICAEW and accountant Grant Thornton have released data suggesting the UK economy will end 2013 on a strong note.
This should be reflected in a firm pound sterling (Currency:GBP) going into year end.
Business Confidence Monitor (BCM) index reached a 10-year high of 31.7 points, up from 24 points in the third quarter.
“This quarter’s report shows that the UK economic recovery is well underway,” said Michael Izza, chief executive of the ICAEW. “If it continues at this rate, the UK economy will be one of the fastest growing economies in the western world going into 2014.
The index shows that business is expecting another year of strong financial performance. Profits are forecast to grow by 4.7pc in the next year, up from 3.5pc in the comparable period.