What to Look for When Trading this Week

Several interesting developments are taking place in Europe as we speak. Private sector growth in the Eurozone has now reached a 7-month high according to the numbers from the Markit Composite PMI for August 2016. The slight increase from 53.2 in July to 53.3 in August was a vote of confidence in the state of the Eurozone economy.

This marks the best reading for the Markit Composite PMI since January 2016. What makes it equally important is that output growth in services accelerated and output growth in manufacturing accelerated. Manufacturing PMI is up at 51.80 while services PMI is at 53.10. The composite PMI is at 53.30, boosted largely by increases in business confidence, industrial production and manufacturing production. This news will bode well for the EUR, and binary options traders will find plenty of traction in the EUR/GBP pair, EUR/USD pair and EUR/JPY currency pair throughout this week.

How is the UK Economy Performing?

In the United Kingdom, we have several important economic announcements scheduled for release this week including the GDP growth rate year on year and quarter on quarter on Friday, 26 August. The consensus forecast is 2.2% for GDP Q2 year on year, while the consensus forecast for GDP Q2 quarter on quarter growth is 0.6%. If these figures come in at consensus forecasts or exceed them, we can expect a bounce for the sterling, but overall the trend is negative. The number of short positions on the sterling increased for the week ending August 16, 2016 by 4,000 over the previous week. While currency trades are the most volume intensive trades in the world, the fact that the trend is increasing towards the short sell side is a clear indication of a lack of long-term confidence in the GBP and the UK economy. The GBP has been declining ever since the Thursday, June 23, 2016 referendum results when it was trading at 1.48 to the greenback.

While the sterling was priced higher against other currencies, the country could afford to run a current-account deficit because foreign direct investment remained high in the UK. However, since the Brexit, a risk-off approach has been adopted to the UK economy and foreign direct investment has slowed dramatically. Even with lower interest rates and a booming FTSE 100 index, there is a great degree of caution among investors and consumers. This has the effect of creating a recessionary-style economic environment which is being countered to a degree by QE measures. A further weakening of the GBP will allow the UK to push its export power and lower the current-account deficit. Foreign direct investment will increase when the murky waters clear and Prime Minister Theresa May indicates her position on invoking Article 50 of the Lisbon Treaty.

How Is the GBP/USD Currency Pair Faring?

Since 15 August 2016, the GBP/USD currency pair has actually rallied. It was then trading at 1.2880, and is now at 1.3193, up 0.43% or $0.0056. The year-to-date return for this currency pair is 10.49% and the 52-week trading range is 1.2798 on the low end and 1.5819 on the high end. Clearly, the currency is heavily depreciated, but the short-term trend is bullish. The GBP/USD pair increased by 1.26% between August 15 and August 22, and by 0.53% in July. Against other currencies, the GBP is performing as follows:

• The GBP/CAD pair is up 0.12% at 1.7014
• The GBP/NZD pair is trading flat at 1.8006 (the Kiwi has appreciated sharply against major currencies)
• The GBP/CNY currency pair is up 0.32% at 8.7753
• The EUR/GBP pair is down 0.27% at 0.8594 (indicating a sterling appreciation)

Despite the short positions on the sterling, the currency is on the ascendancy since USD weakness has been evident.