- Buy orders take up 56% of the market
- 60% of traders hold long positions
- Average three-month forecast is 1.5436
- Immediate resistance is around 1.5180 (monthly S1; 23.60% Fibo)
- Dips to be limited by 1.5165
- Upcoming events today: FOMC Member Tarullo, Dudley, Evans and Williams Speeches, US Core PCE Price Index, US Personal Spending and Income, US Pending Home Sales, UK GfK Consumer Confidence
On Friday and over the weekend the British currency declined against most major peers, with exception against the Yen and the Swissie. The Sterling suffered the most versus the Kiwi, the Aussie and the US Dollar, losing 0.85%, 0.44% and 0.41%, respectively. However, the Pound remained relatively unchanged against the Euro (-0.08%), the Swiss Franc (0.08%) and the Yen (0.01%).
The growth of the US economy in the second quarter of this year was notably quicker than markets had previously anticipated, the second upward revision in a row showed on Friday. According to the Commerce Department, the US gross domestic product rose at a 3.9% annual pace in the three months from April to June, up from a 3.7% advance reported last month, whereas experts forecasted the reading to stay unchanged. In the meantime, consumer spending, which accounts for more than two thirds of the US economic activity, was revised up to a 3.6% growth pace from the 3.1% rate reported in August, helped by cheap gasoline prices and relatively higher house prices, which boosted households' wealth.
In the meantime, the recent data supports the case that the US economy may be gaining enough strength to withstand an increase of key interest rates from record low levels. Moreover, the Fed Chair Janet Yellen kept the door open to the hike this year in her speech on Thursday, as long as inflation remains stable and growth is strong enough to support employment. However, market participants are somewhat concerned that recent headwinds from China's slowdown could dampen the outlook for the further economic expansion of the world's biggest economy.
Paul Bednarczyk, head of research at 4CAST, is optimistic with respect to the world's largest economy over the coming months, saying that "we should be seeing some better US numbers coming through," which will lead the Cable to 1.54. Meanwhile, the analyst considers that "over the next three months Sterling will perform well on a trade-weighted basis," but GBP/USD is still likely to decline to 1.4850. In the longer-term perspective, Bednarczyk is also bearish, setting his 12-month forecast at 1.42, which will be a story of Dollar strength rather than Sterling weakness.
US Pending Home Sales, US Core CPE and UK GfK Consumer Confidence
Monday is a busy day in terms of US fundamental data releases. The most important ones are the Core PCE and the Pending Home Sales. The Core CPE is an average amount of money that consumers spend in a month and is a significant indicator of inflation. No changes are expected in both the Core PCE and the Pending Home Sales; however, the Pending Home Sales could show a higher-than-anticipated number, since the New Home Sales figures surprised to the upside last week. From the UK side the only relevant even is the GfK Consumer Confidence, which is a leading index that measures the level of consumer confidence in economic activity. A high level of consumer confidence stimulates economic expansion while a low level drives to economic downturn. Ultimately, a higher reading could help the Sterling outperform the US currency today, unless a lot of Fed members provide hawkish statements today.
Ross Walker, economist at Royal Bank of Scotland Group, suspects that GBP/USD may descend to 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross mentioned that "the main driver in many ways, as well as the main support in recent times, have been the expectations that the Bank of England will raise interest rates at some point next year, probably the beginning 2016."
GBP/USD attempts to rebound from Aug low
The Cable behaved according to the forecast on Friday, as the pair stabilised around the 1.5180 cluster, after having touched the lowest point of 1.5130. The GBP/USD appears to be reluctant to drop below the August low of 1.5165, despite opening trade between the levels of the mentioned cluster. As a result, the Sterling could partially recover from Friday's losses, although a number of Fed officials might provide sufficient confidence to boost the US Dollar again and, thus, push the pair down to 1.51.
Daily chart
On the hourly chart the situation is similar to the daily one. The downside volatility was somewhat limited by the 23.60% Fibo around 1.5185, which also appears to be preventing the GBP/USD from edging lower today as well. A break through this level is likely to prolong the Cable's last week's bearish trend.
Hourly chart
Bulls prevailing over bears
Bullish market sentiment slightly improved, with 60% of traders holding long positions. Meanwhile, the buy orders retook the majority of the market with 56% (previously 47%).
The sentiment at SAXO Bank shifted to the bullish side, as 55% of their traders are long the Sterling. Bulls at OANDA remain in the majority of the market, with 64% of their positions being long.
Spreads (avg, pip) / Trading volume / Volatility
Average three-month forecast is 1.5436
Judging by the results of the poll among Dukascopy website visitors, traders do not seem to expect a lot of change in the Sterling-Dollar exchange rate during the next three months. The average forecast for GBP/USD is to trade at 1.5436 on Dec 28, but this does not fully reflect the structure of the votes. The most frequently chosen price interval is quite far from the mean value, that is the 1.60-1.62, selected by 17% of respondents, followed in popularity by 1.48-1.50 (16% of respondents).