- The share of buy orders dropped from 56 to 51%
- 62% of all positions are now long
- 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: UK Net Lending to Individuals, UK Mortgage Approvals, US Goods Trade Balance, US CB Consumer Confidence, BoE Governor Carney Speech, UK GfK Consumer Confidence
The Sterling experienced mixed performance on Monday, as it appreciated against some major currencies and declined against the others. The Pound advanced against commodity currencies, namely versus the Kiwi (0.83%), the Aussie (0.50%) and the Loonie (0.43%). Losses, on the other hand, were detected versus the Swiss Franc (0.69%), the Yen (0.58%) and the Euro (0.49%), whereas the Cable remained relatively unchanged and went down only 0.04%.
According to the fresh survey published by the London-based Centre for Economics and Business Research (CEBR), the Bank of England is most likely going to keep the monetary policy unchanged for a longer period of time than it is currently anticipated. While some scenarios suggest that the regulator may hike the Official Bank Rate in February-March of next year, the new report assumes the real timing of policy normalisation is now moving closer to May or even August 2016. New estimates were significantly influenced by the decision of the Federal Reserve not to raise rates in September. On top of that, many experts assume the Bank of England will be ready to move only after the Fed.
In addition to new forecasts produced for the BoE, the CEBR's survey included comments on economic growth in the UK. They estimate the average GDP advance of just 1.7% for the years 2017-2020, even though next year the economy is likely to expand by more than 2%. Centre's economists noted, however, that considerable downside risks remain in place. Among factors that may drag Britain's economic expansion lower, they mentioned Chinese slowdown and weak net exports, while overall activity should be predominantly driven by healthy domestic consumption.
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 CB Consumer Sentiment, BoE Governor's Speech and UK GfK Consumer Confidence
The Net Lending to Individuals in the UK is forecasted to improve, boosting the British currency today. However, later today the BoE's governor is scheduled to speak, whose statement is likely to be dovish, implying that the BoE will not hike interest rates in 2015. As a result, the poor US CB Consumer Sentiment might be ignored by the Cable and force the pair down. The final release will be the UK 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. A higher reading could help the Sterling recover, but no improvements are expected according to forecasts.
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 trades flat, decline expected
The Cable's attempts to appreciate yesterday were dampened by the monthly S1 and 23.60% Fibo, while the Aug low prevented the pair from edging lower. Although the GBP/USD trades in limbo at the moment, stuck in a rather tight range, a potential market mover, namely the BoE governor's speech, could trigger a rally. Nevertheless, there is still room for a slump at least towards 1.51, where the lower Bollinger band rests, while the previously mentioned resistance keeps limiting any upside volatility; the outlook, however, remains bearish.
Daily chart
The 23.60% Fibonacci retracement failed to prevent the GBP/USD from falling on Monday. The Cable remains in the bearish trend, as the newly-formed trend-line is providing resistance, now also bolstered by the 23.60% Fibo around 1.5190.
Hourly chart
Bulls prevailing over bears
Bulls gained some numbers, as 62% of all positions are now long (previously 60%). The share of buy orders dropped from 56 to 51%.
The sentiment at SAXO Bank remains bullish, as 56% of their traders are long the Sterling. Bulls at OANDA also remain in the majority of the market, with 66% of their positions being long.
Spreads (avg, pip) / Trading volume / Volatility
Average three-month forecast is 1.5391
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 1.5391 on Dec 29, 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 interval, selected by 17% of respondents, followed in popularity by 1.48-1.50 (16% of respondents).
Following negative development of the pair during September 21-25 week, participants of our weekly Community Forecasts quiz decided to become much more bearish on the Cable, as currently only 45% of them support movement to the north in course of this week. The average prediction, in turn, is now located at 1.520 level.
On the bullish side, khalidamassi, one of the Dukascopy Community members, says that the Cable fell sharply last week to 1.51, before recovering to 1.52. He believes that it is a strong support, which is likely to hold this week. However, he warns that "the bullish scenario may be threatened by good US NFP numbers." On the bearish side, however, TRENDMASTER suggests that the "Cable remained in bearish market and at risk of further depreciation with strong downtrend formation on monthly/daily and 4-hourly time frame." Consequently, he believes that this week the currency pair will extend its downtrend.