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Sterling Flies From The Low, Supported By Weak Signals From The U.S -

Feb, 29th 10:09

OB market outlook

Last Friday, the pound continued depreciating against the dollar on the upbeat flow of indicators from the U.S. economy.

In the report from the U.S. Commerce Department, GDP Q4/2015 was revived up from the previous estimates, from 0.7% to 1%, much better than the expert’s forecast of 0.4%. Although the most dominant factor in the indicator, the domestic consumption, showed a sigh of cooling-off last year, consumer sentiment remains firmly above 90.0 over the last two months, giving hopes for a revival in the GDP of the first quarter this year.

The dollar index, measuring the value of the USD relative to 6 majors, made the biggest daily rally of 0.8% this month. GBPUSD closed at 1.3869, down 0.6% compared to the opening price (1.3959).

U.S. stock trimmed gains as concerns about higher chance of the next rate hike after a series of better-than-expected data. Both S&P500 and NASDAQ witnessed the second week of advance.

The effect of rumors whether the U.K. stays or leaves the single home continues to echo across the currencies. All the recovery is possibly buoyed by profit-taking cause there’s almost no solid support for the sterling in the short-term.

On Monday, Bank of England (BOE) Governor Mark Carney reiterated that the bank is still waiting for more firmly wage and economic growth to tighten its monetary policy. Resilient accommodative policy keeps weighing on the value of the pound against other majors, including the dollar.

At 2:45 P.M GMT, the Chicago PMI report, published by ISM-Chicago, only reach 47.6 in February, one again lower than 50, raising concerns about the health of U.S economy.

U.S Pending Home Sales for the previous month, which came after a quarter of hour by National Association of Realtors, was reported to decline 2.5 percent, the lowest number since January 2015. The number of homes under contract to be sold but still awaiting the closing transaction, excluding new construction failed to reach the reading of 1 percent last month.

The disappointed data from U.S has supported the pair to bounce back lately.

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Fig GBPUSD Weekly Technical Chart

The pair remains inclined to dive to the lowest of March 2009. RSI relative strength index deepens below the oversold zone, calling for a rebound. However, fundamentals show no sign of support along with the pair is moving far under the SMA 14 and SMA 21. GBPUSD is predicted to linger at the bottom for some time.

Weekly support at 1.3665.

Risk: negative signals from the U.S. economy will give temporary backup for GBPUSD to recover.

Trade suggestion

Buy Digital Put Option at 1.3810 and Digital Call Option at 1.3945

 

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