- Most orders (58%) are placed to sell the Pound
- The gap between the bullish and bearish market participants is no longer significant
- GBP/USD heads towards the 2013 low at 1.48
- Upcoming events: US PPI, Unemployment Claims, Philly Fed Manufacturing Index
Despite there being no explicitly positive news, the Sterling turned out to be the second best performing currency on Wednesday, losing merely 0.03% against the Yen and appeciation 0.73 and 0.68% against the kiwi and Aussie, respectively.
The number of UK mortgage approvals dropped 12% to 55,600 in November from the preceding month, while the volume of loans dropped 13% to 9.2 billion pounds, as demand for mortgages cooled at the end of 2014. According to the latest Bank of England credit report, UK consumers demand for secured loans for house purchases declined substantially in the final quarter of 2014, whereas major lenders foresee a slight rebound in the coming three months. The BoE said the number of mortgage approvals had fallen to the lowest level in 17 months in November. The British Bankers' Association said the number of mortgage approvals between October and November had dropped the most since April 2013, while the volume of loans for house purchases continued to rise. Cooling house price inflation partly reflects weaker mortgage lending and waning demand. The latest official data show house prices had continued to ease as the annual rate slowed to 10% in November, down from 10.4% a month before, according to the Office for National Statistics.
Dramatic fall in global oil prices was beneficial for the British economy, Bank of England Governor Mark Carney reiterated on Wednesday. He also added that UK's falling prices are not the same as a sticky low inflation in the Euro bloc, and highlighted that the ECB has tools to combat deflationary threat and should use them.
UK remains silent; more US data
In addition to the yesterday's disappointing release on the US retail sales, today the Department of Labor is agreed to report an accelerating decline in PPI and an increase in the Unemployment Claims. The Philly Fed manufacturing Index is also expected to come in worse than the previous reading.
GBP/USD rebounds from monthly S3
Simon Smith, Chief Economist at FXPro, advises not overestiment bullish potential of the US Dollar in 2015. 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".
As for the Sterling itself, Charles Purdy, CEO of Smart Currency Exchange, sees weakness in the nearest future, arguing that "the UK election will count against Sterling" in terms of "higher levels of uncertainty". According to the analyst, GBP/USD is likely to fall to 1.50 and then to 1.46 in one and three months, respectively. However, in a year he expects the exchange rate to recover to 1.48, after the BoE hikes the interest rates in the second half of 2015.
Daily chart
Having gained a solid foothold above the monthly S3, the Sterling carried on with the bullish correction, winning more than 70 pips against the Dollar. Taking into account absence of resistances until 1.53, the rally may well extend further, but may be limited by the monthly S2 and weekly R1 levels. The key supply area is at 1.5450, the current location of the seven-month down-trend, and as long as it stays intact, the medium-term outlook will remain bearish.
Hourly chart
Sentiment turns neutral
The gap between the amounts of bullish and bearish SWFX market participants is no longer significant, only 10 percentage points in favour of the former. A slightly larger difference between the bulls and bears is reported by OANDA and SAXO Bank. Both brokers say the share of longs is at 56%.
Concerning the orders, most of them (58%) are to sell the Pound against the buck, meaning the pair may soon face an increasing selling pressure.
Spreads (avg, pip) / Trading volume / Volatility
GBP/USD expected to rise by mid-April; FX Community undecided
As for the weekly forecast of the FX Community members, the largest part (23%) of participants expects the Sterling to trade between 1.53 and 1.52 by Friday. The second most popular answer was 1.52/1.51 (20.5%).
Some of the bulls, as rokasltu, argued that a confirmation of the support at 1.50 is likely to turn out positive for the Sterling. Meanwhile, geula4x sees a major resistance level at 1.55, but also notes presence of a demand area near the round number of 1.50.