- The gap between the buy and sell orders narrowed from 16 to 6 percentage points in favour of the latter
- The share of long positions went down from 58 to 56%
- GBP/USD heads towards the 2013 low at 1.48
- Surveys: Sterling to decline in the near and long terms
- Upcoming events: UK Average Earnings, Claimant Count Change, MPC Votes, US Building Permits, Housing Starts
As it turned out, absence of news on Tuesday did not prevent appreciation of the Great British Pound. The currency advanced as much as 2.09% against the kiwi and 1.65% against the loonie, underperforming only the Franc (-0.21%).
As reported yesterday, UK house prices rebounded unexpectedly in January after falling in the preceding two months as demand from first-time buyers rose due to stamp duty changes, while the supply continued to lag behind, according to Rightmove. The average asking price increased 1.4% in January, following the 2.2% decline a month earlier, translating into annual advance of 8.2%. However, one of the UK's biggest mortgage lenders expect that the housing market will slow down throughout this year due to the general election in May and mortgage restrictions, which will impact the sentiment, eventually resulting in smaller number of transactions compared to the previous year. Concerning the demand for mortgages, the latest Bank of England credit report revealed demand from British consumers for secured loans for house purchases had fallen markedly in the final three-month period of 2014, but major lenders predicted a slight bounce back in the upcoming three months.
Elsewhere, the think-tank E&Y ITEM Club said very low inflation will push the first interest rate hike by the Bank of England to 2016 and help provide a renewed momentum in the property market. Data from the Office for National Statistics revealed last week that Britain's inflation slowed further to a historic low of 0.5%, considerably below the central bank's 2% inflation goal.
News-heavy Wednesday
The first two days of this week were a calm before the storm. Apart from the news on the state of the UK labour market and on the MPC votes at the beginning of the London trading session, later in the day the Census Bureau is scheduled to reveal the latest tendencies in the US real estate market.
GBP/USD turns around at 1.5050
Simon Smith, Chief Economist at FXPro, advises not overestimate 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
GBP/USD quickly erased Monday's losses as soon as it touched upon the weekly S1 at 1.5050. For now the bulls keep pushing the price higher, willing to breach the resistance at 1.5150, represented by the weekly PP and monthly S3. If they succeed, the rally will be in a good position to extend to 1.53, the current location of the 20-day SMA and monthly S2. Conversely, if they fail, the Sterling is likely to continue to move towards the 2013 low at 1.48.
Hourly chart
Bulls fail to increase their share
Apparently, some traders are beginning to take profits on the Pound's rally, as the share of long positions went down from 58 to 56%. The bullish sentiment among the OANDA and SAXO Bank clients weakened as well. The share of bulls at OANDA retreated to 56% and at SAXO Bank to 58%.
The gap between the buy and sell orders placed in the SWFX market narrowed as well, but from 16 to 6 percentage points in favour of the latter, indicating there are less people willing to resist appreciation of the Pound.
Spreads (avg, pip) / Trading volume / Volatility
Long-term forecasts turn bearish
A near-term survey that asks FX Community members regarding the week-end prospects reveals that there are more people (57%) expecting the Sterling to lose value not only in the long run, but also this week as well. Nevertheless, the mean prediction is not far from the spot price, namely at 1.5160, even though 26% participants voted for the 1.515/1.502 range.
Among the potentially bullish factors, RacerX noted that the "upcoming employment reports point to modest gains in both jobs and wages", adding also that "there is a possibility of a soar in light of news from Switzerland and the Eurozone". On the other hand, geula4x believes that "GBP/USD still looks quite bearish", though he did highlight a support level at 1.50 and a resistance level at 1.5270.