- 59% of all pending orders are to sell the Pound
- 59% of traders have a positive outlook towards the Sterling
- Immediate resistance is around 1.2750
- The closest support is at 1.2650
- Upcoming events: UK CPI, UK PPI Input and Output, UK RPI, UK HPI, US Import Prices
Mood of American shoppers improved markedly in December, following Donald Trump's surprise victory in the US presidency elections, official figures revealed on Friday. The University of Michigan reported its preliminary Consumer Sentiment Index jumped to 98.0, the highest reading since January, while marked analysts anticipated a slighter improvement to 94.3 from November's 93.8 points. Confidence among consumers rose shortly after the elections. The Current Conditions Index, which measures the way consumers feel about the present state of the economy, advanced to 122.1 in December from the preceding month's 117.3 points, the highest level since 2005. A record number of survey respondents pointed to the positive effects of new policies.
Furthermore, the survey showed the proportion of people expecting the economy and labor market to improve next year also increased in the reported month. The gauge of expectations six months from now climbed to 88.9, the highest since January 2015, following the prior month's 85.2 points. Consumers' inflation expectations for the next year declined to 2.3%, the lowest level since 2010, compared with November's 2.4%, while their expectations for inflation over the next 10 years fell to 2.5% from 2.6%.
UK inflation data and US Import Price Index
Tuesday brings a number of fundamental data, such as the UK inflation figures. First of all, the UK CPI, it is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Second, the UK PPI Input and Output, which are a monthly measurement of the rate of inflation experienced by the UK manufacturers when buying goods and services. They capture changes in the average price of a fixed basket of goods and services purchased by the UK Manufactures. From the US side the US Import Prices are due. The Import Price Index informs the changes in the price of imported products into the US. The higher the cost of imported goods, the stronger the effect they will have on inflation, redunding in a higher probability of a rate rise.
GBP/USD: 1.27 in focus
The British currency set off with a strong rally against the US Dollar this week, having not only retaken the 1.26 major level, but also having put the 1.27 mark to the test. Even though the 1.27 major level represents some psychological resistance, the GBP/USD pair has the potential to reach 1.2740, with the overall intraday high expected to be the 1.2771 level—where the 100-day SMA is located at. Technical indicators support the possibility of the positive outcome today, but a lot of impact is still likely to be from the fundamental events today, meaning that solid downside risks are present, in which case the pair could retreat back to 1.26.
Daily chart
The Cable managed to climb back up, stabilising above the 200-hour SMA yesterday. The situation on the hourly chart largely supports the outlook of the daily one, namely indicating two possible resistance areas, the 1.27 major level and the 1.2773/78 area. At the same time, the 200-hour SMA keeps providing support, suggesting the Pound is to inch higher.
Hourly chart
Traders mostly bullish
Both long positions and sell orders take up 59% of the market today, compared to 58% and 60% on Monday, respectively.
A similar situation is observed elsewhere. For example, 59% of positions open at OANDA are currently long. This is more than the share of shorts (41%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 57% of traders being long and 43% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect no major changes
By the end of the next three months traders expect the Cable to be higher than the level where it is now. While the current price is around 1.24, the average forecast for March 13 is 1.254. Furthermore, the 1.30-1.32 interval is now the most popular one, having 14% of the votes. On the second place in terms of the votes is the 1.28-1.30 (12%) interval, followed also by the 1.18-1.20 and 1.32-1.34 intervals, both with only 11% of the votes. Moreover, 59% all survey participants believe the Cable is to fall above 1.24.