Forex Market: GBP/USD daily trading forecast

November 5, 2015 8:12 am

Yesterday’s trade saw GBP/USD within the range of 1.5356-1.5444. The pair closed at 1.5383, shedding 0.25% on a daily basis, or the most since October 27th, when it lost 0.35%. The daily low was a lower-low test of the low from Tuesday and also the lowest level since October 30th, when a low of 1.5302 was registered.

At 7:30 GMT today GBP/USD was down 0.02% for the day to trade at 1.5384. The pair touched a daily low at 1.5377 during early Asian trade, undershooting the daily S1 level.

Today GBP/USD trading may be influenced by the macroeconomic reports and other events listed below.

Fundamentals

United Kingdom

Bank of England policy decision

At 11:00 GMT Bank of England is to announce its decision on monetary policy. The benchmark interest rate (repo rate) will probably be left unchanged at the record low level of 0.50%. The rate has been at that level since BoE’s policy meeting on March 5th 2009. The repo rate applies to open market operations of the central bank with other banks, building societies, securities firms etc.

At the same time, the pace of BoE’s monetary stimulus will probably be left without change as well, at GBP 375 billion. The asset-purchasing programme, financed by the issuance of central bank reserves was initiated on March 5th 2009, while the scale of this programme was increased by GBP 50 billion to the current GBP 375 billion on July 5th 2012. The central bank issues new money in order to purchase gilts from private investors, such as pension funds and insurance companies.

The minutes from the Bank’s policy meeting held in October revealed that 8 members of the Monetary Policy Committee voted in favor of keeping borrowing costs intact, while 1 member voted in favor of a rate hike. In addition, all 9 members voted unanimously in favor of keeping the stock of purchased assets without change.

According to extracts from the Bank’s Monetary Policy Statement, released in October: ”Twelve-month CPI inflation was zero in August, well below the 2% target rate. Around three-quarters of that deviation reflects unusually low contributions from energy, food and other imported goods prices. The remaining quarter reflects the past weakness of domestic cost growth. Although rising, increases in labour costs remain lower than would be consistent with meeting the inflation target in the medium term, were they to persist at current rates.”

”As in recent months, the outlook for growth remains characterised by a number of opposing influences. On the one hand, UK private final domestic demand, and consumer spending in particular, has been resilient, buttressed by the recovery in real income growth and productivity, supportive monetary policy, and robust business and consumer confidence. On the other hand, the on-going fiscal consolidation has had a restraining influence on activity and global growth has continued at below-average rates.”

”The most recent official estimates and survey data are consistent with a gentle deceleration in UK output growth since its peak at the beginning of 2014. The sharp declines in the unemployment rate seen since the middle of 2013 now appear to have levelled off.”

”A deterioration in the global demand environment would slow the pace of expansion further. That could occur, for example, were the slowdown currently underway in a range of emerging economies, including China, to intensify. Growth in the euro area, the United Kingdom’s main trading partner, has so far remained relatively resilient.”

Bank of England Governor Mark Carney has said earlier this year that the decision in regard to the timing of lifting borrowing costs will come by the end of 2015 and will be at a gradual pace.

Carney is expected to take a statement at 12:45 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 October 30th, probably increased to 264 000, according to market expectations, from 260 000 in the previous week. If so, this would be the highest number of claims since the business week ended on September 25th.

The 4-week moving average, an indicator lacking seasonal effects, was 259 250, marking a decrease of 4 000 compared to the preceding week’s unrevised average. It has been the lowest level for this average since December 15th 1973, when 256 750 claims were reported.

The business week, which ended on October 23rd has been the 34th consecutive week, when jobless claims stood below the 300 000 threshold.

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 unchanged at the seasonally adjusted 2 144 000 during the business week ended on October 23rd. It has been the lowest number of claims since the week ended on November 4th 2000, when a level of 2 110 000 was reported. The figure represented a decrease by 37 000 compared to the revised up number of claims reported in the week ended on October 9th. 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 Department of Labor is to release the weekly report at 12:30 GMT.

Bond Yield Spread

The yield on UK 2-year government bonds went as high as 0.736% on November 4th, or the highest level since August 31st (0.770%), after which it closed at 0.721% to add 3.5 basis points (0.035 percentage point) compared to November 3rd, while marking a third trading day of gains in a row.

The yield on US 2-year government bonds climbed as high as 0.853% on November 4th, after which it closed at 0.849% to add 7.9 basis points (0.079 percentage point) compared to November 3rd, while marking a third 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 0.128% on November 4th from 0.084% on November 3rd. The November 4th 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 2.011% on November 4th, or the highest level since July 23rd (2.041%), after which it slid to 1.994% at the close to add 2.3 basis points (0.023 percentage point) compared to November 3rd, while marking a third straight trading day of increase.

The yield on US 10-year government bonds climbed as high as 2.241% on November 4th, or the highest level since September 17th (2.298%), after which it slipped to 2.227% at the close to add 0.009 percentage point compared to November 3rd, while marking a third consecutive trading day of gains.

The spread between 10-year US and 10-year UK bond yields shrank to 0.233% on November 4th from 0.247% on November 3rd. The November 4th yield difference has been the lowest one since November 2nd, when the spread was 0.232%.

Daily and Weekly Pivot Levels

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

R1 – 1.5391
R2 – 1.5400
R3 (range resistance) – 1.5407
R4 (range breakout) – 1.5431

S1 – 1.5375
S2 – 1.5367
S3 (range support) – 1.5359
S4 (range breakout) – 1.5335

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

Where to Trade

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