- The difference between the buy and sell orders remains insignificant (-4 pp)
- 57% of open positions are long
- GBP/USD heads towards the 2013 low at 1.48
- Survey: Sterling to decline in the long run
- Upcoming events: UK Realised Sales, US Unemployment Claims, Pending Home Sales
Due to a lack of fundamentals the Pound was neither explicitly bullish nor bearish yesterday, rising 1.46% against the New Zealand Dollar and losing 0.67% against the Yen.
Andrew Haldane, chief economist at the Bank of England, pointed that the benchmark interest rate will rise gradually over the course of the next couple of years in order to ensure a sustainable economic growth. Haldane said that the rate lift could be as slow as half a percentage point a year and did not expect interest rates returning to levels seen in 1980s or 1990s. The BoE has maintained interest rates at ultra-low of 0.5% for almost six years since the depths of the global financial crisis. Last week BoE Governor Mark Carney noted interest rates would need to rise over the course of the next three years to prevent inflation from overshooting the central bank's 2% goal. Also, Kristin Forbes, an MPC member, said the UK interest rates may start rising sooner than many analysts expect if inflation rebounds strongly after its recent precipitous decline.
In January, the BoE voted unanimously to keep the base rate unchanged at the all-time low of 0.5% versus market expectations of an ongoing split among policy makers. Both Martin Weale and Ian McCafferty unexpectedly joined the rest of the seven members saying that "low inflation might persist for longer than the temporary factors implied and concluded that this risk would be increased by an increase in Bank Rate at the current juncture." Meanwhile, economists expect that the central bank will keep rates at a historic low until at least October as inflation remains below the BoE's target.
GBP/USD to be driven by the US news
Taking into account that even a surprise in the UK Realised Sales is unlikely to have a noticeable impact on GBP/USD, it is reasonable to give the United States data more attention today, also considering that it is the day of the US Unemployment Claims that are expected to fall from 307 to 301 thousand.
GBP/USD retreats to monthly S3
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 pared some of the latest gains, but the pair is nonetheless in a good position to advance towards 1.53, namely the seven-month down-trend, as the support at 1.5150 stays intact. Alternatively, if the monthly S3 gets breached, the Sterling will likely decline to the weekly PP at 1.5050. However, the sell-off will have a low chance of stopping here, being that eventually the Cable should approach the 2013 low at 1.48.
Hourly chart
Sentiment ignores price changes
The SWFX market seems to ignore price fluctuations for now, as the sentiment still does not exhibit sensitivity to changes in GBP/USD, 57% of open positions are long. At the same time, the difference between the buy and sell orders remains insignificant (-4 pp), meaning the demand and supply are equally matched at the moment.
The same distribution between the longs (57%) and shorts (43%) is observed at SAXO Bank, while there are slightly less bullish market participants (49%) than there are bearish ones (51%) at OANDA.
Spreads (avg, pip) / Trading volume / Volatility
GBP/USD to be at 1.505 in three months
The sentiment among the FX Community members towards the Cable changed insignificantly during past week. The median expectation for Friday is around the 1.505 level. The traders also do not seem to expect the pair to follow a strong trend, being that as many as 47% of respondents see GBP/USD ending the week between 1.510 and 1.495.
One of the Pound-bullish FX Community members, rokasltu, believes GBP/USD is facing a tough support at 1.50, meaning the risks are skewed to the upside. Meanwhile, khalidamassi sees a major support a little lower, at 1.4812, suggesting there is still room for the price to fall.