- The share of sell orders declined to 74%
- The distribution between the long and short positions is 58% and 42%, respectively
- GBP/USD heads towards the 2013 low at 1.48
- Surveys: Sterling to decline in the near and long term
- Upcoming events: UK Mortgage Approvals
The British Pound benefited from the positive fundamental data, appreciating as much as 1.3% against the Euro and Aussie. However, the it did not help the currency to outperform the buck (-0.14%) and the Yen (-0.75%), even though the news from the United States were largely disappointing.
UK retail sales surprised markets to the upside, posting an unexpectedly solid growth in December driven by a sharp increase in food sales amid cheaper fuel prices and ultra-low inflation. The Office for National Statistics showed, overall sales volumes rose 0.4% in December following the 1.6% surge in the preceding month, the fastest growth in more than a decade. Economists, however, had expected a 0.6% decline. Sales jumped 4.3% in the reported month compared with the previous year, after the last month's 6.4% annual increase. Sales excluding fuel climbed 0.2% against market predictions, while on an annual basis sales soared 4.2%. In the three months through December, a smoother gauge compared with the often volatile monthly changes, core sales advanced 5.0% from the same period in the previous year, the biggest increase in more than 10 years.
Consumer spending has ensured Britain's strong economic recovery which began in mid-2013 and is likely to remain its main engine as demand for exports is still weak due to the Euro zone's slowdown. Wages have started to show some signs of recovery after increasing by less than inflation for much of the period since the financial crisis, and consumer prices are barely growing, spurring spending power this year. The upbeat consumer mood could also provide a support to Prime Minister David Cameron, who is facing national elections in May.
Monday to be quiet; Tuesday not so much
Apart from the UK Mortgage Approvals at 9:30 GMT there should be no significant events today. On the other hand, tomorrow at the same time the Office for National Statistics is going to release the GDP growth figure, which is highly unlikely to be ignored by the market. The second part of Tuesday will be dominated by the US data, such as Durable Goods Orders, Consumer Confidence, New Home Sales, and many more.
GBP/USD retains negative bias
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
Considering the absence of any significant supports nearby, the bearish tendency is expected to persist. The closest demand area is situated more than 100 pips away from the spot price, namely at 1.4887/61, followed by a much more important 1.4808/1.4788 zone, where the 2013 low and weekly S2 merge. The immediate resistance is at 1.5049, though in the case of a rally it is likely to let GBP/USD rise up to the monthly S3 at 1.5148/45.
Hourly chart
Sentiment is moderately bullish
The distribution between the long and short positions was not subject to major changes during the weekend, it is 58% and 42%, respectively. The share of sell orders declined, but they remain in a distinct majority, 74% today against 81% on Friday, meaning the supply dominates, but is weakening
Stability in the sentiment is also observed at OANDA and SAXO Banks, where 55 and 64% of open positions are long, respectively, exactly like on Friday.