- The number of buy orders increased from 29 to 36%
- 53% of all positions are now long
- 21% of traders believe the British Pound will cost more than 1.60 dollars after a three-month period
- Immediate resistance is around 1.55 (100-day SMA, monthly R1 and Bollinger band)
- The nearest support lies around 1.54
- Upcoming events today: FOMC Member Brainard Speech, NAHB Housing Market Index, BoE Governor Carney Speech, US Building Permits, US Housing Starts
The British Pound appreciated against most major peers on Friday and over the weekend, with exception against the US Dollar. The Sterling gained the most against the Aussie (0.73%), which weakened after the release of RBA Financial Stability Review. The second largest gain of 0.46% was also against a commodity currency, namely the Kiwi, followed by moderate gains against the Yen, the Loonie, the Swissie and the Euro. However, the Cable went down 0.14%, amid better-than-expected US fundamentals.
The UK jobless rate dropped to the lowest level in seven years in August, while proportion of people in employment rose to the highest level since records began in the 1970s. The unemployment rate came in at 5.4% for the three months through August, compared with 5.5% in the three months to July, as the number of unemployed people dropped by 79,000 to 1,77 million. The Office for National Statistics reported employment surged by 140,000 over the period, increasing the number of people in work to 31.12 million. The employment rate also reached a record high of 73.6%. While the decline in consumer prices boosted consumers' purchasing power, Britons also enjoyed growth in wages, which rose 3%.
Last week, the International Monetary Fund upgraded its growth outlook for the UK, while revising downwards its expectations for the world's economy as a whole, due to concerns over emerging markets and China. The think-tank predicted British growth to be 2.5% this year, and 2.2% in 2016. In fact, the IMF highlighted the economy as a rare bright spot amid a dismal global outlook.
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 NAHB Housing Market Index
Monday is a quiet day in terms of economic events. The only upcoming data release worth mentioning is the US NAHB Housing Market Index. It presents home sales and expected home buildings in the future indicating housing market trend in the United States. The growth rate of the housing market affects the USD volatility. Although the changes are expected, a worse or better-than-expected figure is likely to push the given pair accordingly.
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 remains stuck between 55 and 100-day SMAs
The British currency was unable to pierce the resistance cluster at 1.5485, ultimately suffering a 34-pip decline. Not much has changed over the weekend. Technical indicators remain unchanged, but the resistance cluster strengthened, as the Bollinger band is now bolstering it. At the same time, immediate support is now represented by the 55-day SMA and the weekly PP around 1.54, creating more space for a possible decline today. Even though the Cable is expected to remain flat, a correction is still expected, pushing the pair several pips higher.
Daily chart
After touching the resistance trend-line on Thursday, the GBP/USD began to lose momentum. However, Friday's decline is considered to be a slight setback and with the 200-hour SMA edging closer to the spot price, a rebound is likely to take place.
Hourly chart
Bulls in the majority, but keep losing numbers
Bulls keep retreating, as only 53% of all positions are now long. Meanwhile, the number of buy orders increased from 29 to 36%.
The sentiment of other market participants shifted to the bearish side. OANDA now has 53% of traders holding short positions (previously 54%). Meanwhile, 61% of traders at SAXO Group retain a negative outlook towards the Cable, compared to 60% on Friday.
Spreads (avg, pip) / Trading volume / Volatility
21% of traders believe the British Pound will cost more than 1.60 dollars after a three-month period
According to the survey, conducted between Sep 19 and Oct 19, the Sterling is expected to cost 1.5434 dollars in three months. The 1.58-1.60 price interval received the largest number of votes, namely 17%, followed in popularity by the 1.50-1.52 interval, selected by 16% of the voters. However, the overall majority (56%) believes that the Pound will fall below the 1.56 major level by January 19.