UK Economy Continues to Struggle, British Pound Falls and May Go Even Further Down

UK Economy Continues to Struggle, British Pound Falls and May Go Even Further Down

Economic events that move USD/GBP today…

  • UK Manufacturing PMI
  • US ISM Manufacturing PMI
  • US ADP Employment Change
  • FOMC Statement

British Pound dropped against the dollar on Wednesday after the UK manufacturing sector contracted more than anticipated, keeping alive the chances of more monetary easing by the Bank of England (BoE) in the near term. Early year readings of negative GDP showing the economy is doing worse, are being confirmed with this numbers

Sterling is now trading in a very narrow range in the 1.56 area, down 38 pips from the previous session.

Technical Analysis

Monthly chart:GBP/USD has been trading inside the Ichimoku cloud for the past 5 months. It has been trading in a very narrow range around the 1.56 area since end of June, with no obvious direction for long-term traders.

British Pound (GBP/USD) Monthly Chart, August 2012

Weekly chart:The pair is trading inside the Ichimoku cloud, close to the cloud’s lower band. The candle sticks have formed a bearish engulfing, which means that sellers have overpowered the buyers in the FX market, and a move down can happen on a weekly basis. In the case of a drop, the pair should be supported at the levels of January in the 1.52 area.

British Pound (GBP/USD) Weekly Chart, August 1, 2012

Daily Chart:GBP/USD has been trading bearish inside the Ichimoku cloud for three consecutive days below the range resistance at 1.5736, hinting a move lower is ahead. If the pair breaks the lower band of the Ichimoku cloud, and the near-term support at 1.5484 and rising daily trend line set from June 1, that will open the door for a downside move targeting the lows of the beginning of June at 1.5270. Otherwise, we still remain on the wait-and-see mode.

British Pound (GBP/USD) Daily Chart, August 1, 2012

4-Hour Chart: As we zoom in the time-frame, the near-term downside signal gets stronger for Sterling. The pair has been heading down towards the 4-hour Ichimoku cloud, falling from the highs of June 27thin the 1.57 area. A break below the 4-hour Ichimoku cloud could open doors for further drops to the 1.54 area.

British Pound (GBP/USD) 4-hour chart, August 1, 2012 10 EST

Sentimental Analysis

The Speculative Sentiment Index (SSI) also signals more near-term GBPUSD losses. The pair’s ratio flipped as retail traders fade three-day decline ahead of the BoE data on Wednesday. The ratio of long to short positions in the GBPUSD stands at 1.17 as nearly 54% of traders are long. The SSI is a contrarian indicator assuming that the majority of the trading crowd usually have the wrong position, therefore signals more losses.