- The share of sell orders declined from 62 to 58%
- Continuous depreciation of GBP is discouraging the bulls — their share fell from 63 back to 60%
- GBP/USD aims for 1.48
- Upcoming events: UK Rate Decision, US Unemployment Claims
Shop prices in the UK remained in deflationary territory in December, but fell at a slightly slower pace, while food prices climbed after declining for the first time on record in November, according to the British Retail Consortium. Overall UK shop prices were 1.7% lower in December compared with the same period a year earlier and following 1.9% fall in November. Annual food price inflation rose a bit to 0.1% after falling 0.2% in November, while non-food deflation slowed slightly to 2.8% in December from 2.9% in the previous month. The data reinforces expectations that overall UK inflation remained low in December. Cooling inflation in recent months has increased Britons' spending power and pushed back predictions of when the Bank of England will start to hike interest rates. UK CPI inflation fell in November to 1%, the smallest increase in 12 years, and may drop further below the official target of 2%. Ben Broadbent, the BoE's Deputy Governor, said that the lower inflation forecast for 2015 is mostly commodity prices and import prices driven.
If inflation falls below the 1% threshold, it necessitates an open letter to UK Chancellor George Osborne, addressed from Bank of England Governor Mark Carney. The December inflation figures are due next Tuesday, January 13.
Rate decision
GBP/USD did not turn out to be particularly sensitive to the yesterday's releases, but the volatility may notably increase today, as the Monetary Policy Committee is scheduled to vote on the rate. However, no changes in the monetary policy are expected - inflation remains well below the target, and the neighbour of the United Kingdom, Europe, is far from its best condition. Yet another factor, mentioned by James Hughes at Alpari in an interview with Dukascopy TV, that decreases the chance of a rate hike in the nearest future is the general elections, as the government may not be willing to affect the earnings of citizens before the vote. Later in the day the number of unemployment claims in the US may also contibute to the turbulence in the market.
GBP/USD heads towards 2013 low
Simon Smith, Chief Economist at FXPro, advises not overestiment bullish potential of the US Dollar. According to him, "we will see Dollar strength through the year, but it's going to be a very difficult year in terms of trends".
Daily chart
As the demand at 1.5150 (weekly S2 and monthly S3) did not succeed at stopping the sell-off, the Sterling is likely to lose even more value in the coming weeks. The closest support is at 1.4931, represented by the weekly S3, and it is not expected to change the current downward direction of GBP/USD. On the other hand, the 2013 low at 1.48 has the potential to prevent or at least delay further depreciation of the Pound.
Hourly chart
Bears start crowding out the bulls
Previously the traders seemed to be taking advantage of the cheapening Sterling, now continuous depreciation of the currency is discouraging the bulls to enter the market — their share fell from 63 back to 60%. The same tendency is spotted at OANDA, where the portion of the long positions slid to 55%, while there is still a notable difference between the bulls (59%) and the bears (41%) at SAXO Bank.
Meanwhile, there are signs the selling pressure may be subsiding, being that the share of sell orders placed 100 pips from the current market price declined from 62 to 58%.
Spreads (avg, pip) / Trading volume / Volatility
Pound to stabilise near 1.5850 in Q1
Concerning the present week, the sentiment among the FX Community members experienced some changes, but the vast majority of all votes are still negative on the GBP/USD currency pair, namely 58% of them. The average prediction for Friday of this week is located around the 1.540 major level. According to one of the bears, rokasltu, GBP/USD "will go downside along with EUR/USD. During this week it might diminish by 150-200 pips".