GBP/USD rises ahead of UK GDP

• The number of buy orders retreated to its last Thursday's level of 42%
• The share of longs increased by four percentage points, up to 45%
• 14% of traders expect the Sterling to cost between 1.44-1.46 dollars after three months
• Nearest support lies around 1.5080, represented by the 100-day SMA and the weekly PP, while closest resistance rests at 1.5290, namely the Bollinger band and the weekly and monthly R1s
• Upcoming events: UK GDP, US Consumer Confidence

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The British Pound experienced mixed performance yesterday, as it not only appreciated against some major peers, but also declined against others. Largest gains of 0.45%, 0.36% and 0.33% were registered versus the Swissie, the Yen and the Greenback, respectively. At the same time, the most substantial loss of 0.41% was detected against the Canadian Dollar.

UK industrial order expectations improved less than expected in April, sapping optimism over the British economic outlook. According to the Confederation of British Industry, the index of industrial order expectations rose by 1.0 point to a reading of 1.0 this month from March's level of 0.0. Analysts, however, had expected the index to soar by 4.0 point to 4.0 in April. While the pace of growth in UK factory orders slowed in the three months to April, companies remained more upbeat about the outlook. The quarterly industrial trends survey by the industry group CBI showed the balance of total new orders slowed to +13 in April from +20 in January, due to weak exports which might reflect the recent strengthening of Pound. For the upcoming three months, the survey showed the balance for expectations of new orders rose to +22 from +11 in January, reaching the highest level since July 2014. Investment intentions dropped sharply from strong levels across all categories, the CBI added.

Official data later today is expected to show British economic growth slowed in the first three months of this year. The median market forecast stands at 0.5%, while the last quarter of 2014 the UK economy expanded at the 0.6% growth rate, a revision from 0.5%.

In light of the recent data, Ian Stewart, chief economist at Deloitte, reckons "the UK has quite good momentum," which largely stems from the exports and the consumer. He also sees "decent recovery" in the investment, and this is likely to result in the UK being "one of the fastest growing economies in Europe." At the same time, Steward does not consider the elections to be a major risk factor for this recovery, though he does acknowledge a likelihood of greater volatility in financial markets in the run-up to the general election.

According to the economist, the general effect of strong economic data out of the UK should be supportive of the Sterling, particularly against the Euro, while concerning the speculations on the UK leaving the European Union, Stewart thinks this is a low-probability event, with the chances that are "well below 50%," since most political parties and a large portion of business and media would likely campaign in favour of continued membership.

Jamie Jemmeson, head of trading at Global Reach Partners, talks about the upcoming elections in the UK. He says that the UK is sailing into murky waters right now, with no clear definition of what is going to happen next. Jamie adds that this is also going to lead to more Sterling volatility, so the investor has to be cautious.

He also gave his prospects on the effect the elections might have on the British currency: "I think that generally in terms of you looking at Sterling volatility, a Tory Government would be more positive for the Pound." He still mentioned that "Generally, if you look at historically how the Pound has re-answered, it prefers a Tory Government."

UK GDP and US Consumer Confidence

David Starkey, market analyst from Cambridge Mercentile, said that the BoE is most likely going to leave the rates unchanged. However, he also mentioned that "there is certainly a bit of dissent amongst the BoE, their chief economist suggested that there could be room for a cut if inflation continues to track negative, while Carney has openly and publicly suggested that the next move is going to be a hike." The analyst also gives his prospects for the near future, saying that "dissent is probably good, the BoE is going to be analysing the situation closely, the majority of the members still lean towards a hike, one descending voice does not suggest that it is going to be a cut in the near term."

GBP/USD rises ahead of UK GDP

Yesterday, despite some troubling volatility to the downside, the GBP/USD pair still ended the trading session with a rally. The Cable managed to overcome the 1.52 level and even went over the Bollinger band, before stabilising at 1.5221. Technical studies are suggesting further rally today, in spite of weaker GDP data expectations. A strong resistance cluster around 1.5290 should limit gains, while we should not rule out the probability of a fall back to 1.51 due to possible improvements in US fundamentals.

Daily chart

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Hourly chart

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Market sentiment slightly improved, but remains bearish

SWFX traders' outlook towards the Sterling improved, as the share of longs increased by four percentage points, up to 45%. The number of buy orders, on the other hand, retreated to its last Thursday's level of 42%.

SAXO Group bearish traders' sentiment remained unchanged, with 65% of all positions being short. Meanwhile, OANDA's traders now have more bulls than bears, as long positions now take up 51% of the market.

Spreads (avg, pip) / Trading volume / Volatility

14% of traders expect the Sterling to cost between 1.44-1.46 dollars after three months

© Dukascopy Bank SA