The macroeconomic data in both the United States and the UK did not match forecasts in any way, and, oddly enough, this contributed to the pound's strength. Which should have happened if all the expectations were confirmed. This happened only due to a single indicator. But about everything in order.
The day started for the pound not in the best way, as the final data on PMIs turned out to be slightly worse than the preliminary estimate. In particular, the index of business activity in the service sector increased from 47.1 to 56.5, and the composite index from 47.7 to 57.0. The trick is that, according to preliminary estimates, the service sector index should have grown to 56.6, and the composite to 57.1. That is, in general, the result is not just not bad, but even very, very good, since the indices not only rose, but also climbed above the 50 point mark, which separates stagnation from growth. But they expected a little more. True, the deviations are so small that they did not greatly affect the mood of market participants.
Composite PMI (UK):
But the most interesting thing happened with the US data, which came as a real surprise. First, business activity indices, despite fears, significantly rose more than expected. Thus, the index of business activity in the service sector, which was supposed to grow from 47.9 to 49.6, rose to 50.0. The composite business activity index rose from 47.9 to 50.3, while it should have grown only to 50.0. And in theory, this should have strengthened the dollar, but nobody cared about it any more, as market participants were greatly frightened by the ADP data on employment. The fact is that this very employment increased by 167,000. And this is against the forecast of 1,550,000. Indeed, in the current conditions of record high unemployment, such an increase in employment is not just extremely small. We can say that it does not exist at all. But the Labor Department report will be released tomorrow, and, apparently, it will greatly disappoint investors.
Employment Change from ADP (United States):
Today began with a fairly early meeting of the Bank of England, the results of which contributed to the further strengthening of the pound. The British central bank left all monetary policy parameters unchanged. This is to be expected. But most importantly, there was no hint of the possibility of easing monetary policy, at least in the near future. Apparently, the BoE will not take any action until the end of the year, and at the moment it looks like a strong position. At least it is at least some kind of stability and clarity. And this is exactly what is now so lacking.
Refinancing rate (UK):
Now all the attention of market participants will be focused on the data on applications for unemployment benefits in the United States. Moreover, on the eve of the publication of the report of the Ministry of Labor, after yesterday's ADP data, at least some portion of optimism is needed. The number of repeated applications for unemployment benefits should be reduced from 17,018,000 to 16,900,000. The number of initial applications may grow from 1,434,000 to 1,450,000. But against the background of an increase in the number of repeated applications, this will not greatly affect the mood market participants.
Repetitive Unemployment Insurance Claims (United States):
In terms of technical analysis, the price rebounded from the local high of July 31-1.3169, where the quote found periodic resistance and thus slowed down the upward movement.
The price movement along the ascending channel has been taking place on the market for more than a month, and the pound sterling has about 900 points in its piggy bank, but this does not stop the US dollar, which is overheated from sales.
Relative to the dynamics, high volatility indicators are recorded, which indicates the prevailing speculative interest in the market.
Looking at the trading chart in general terms, the daily period, you can see that during the construction of the ascending channel, the quote managed to fully recover from the March collapse of the price.
We can assume a temporary fluctuation in the range of 1.3100/1.3170, where a breakout of the upper border will lead to an update of local highs and complicate the situation with the overbought sterling. Pinning the price lower than 1.3100 would benefit the overheated market, which would lead to a corrective move in the direction of 1.3060-1.3000.
We will specify all of the above into trading signals:
- Short positions are considered lower than 1.3100 with the prospect of a move to 1.3060-1.3000.
- Long positions are considered higher than 1.3170 with the prospect of a move to 1.3250/1.3300.
From the point of view of complex indicator analysis, we see that the indicators of technical instruments on the minute, hour and day periods signal a purchase due to the movement of the price in the direction of the ascending channel.