- The portion of buy orders slid from 36 to 34%
- 56% of all positions are now long.
- 16% of traders assume the British Pound will cost between 1.58 and 1.60 dollars in three months
- The nearest resistance lies at 1.5490, namely the monthly R1 and 100-day SMA
- Immediate support rests around 1.54 (55-day SMA and weekly PP)
- Upcoming events today: UK Retail Sales, MPC Member Cunliffe Speech, US Jobless Claims, US HPI, US Existing Home Sales, US CB Leading Index
The British currency advanced against most major peers on Wednesday, amid the narrowing between the spending and income in the public sector. The Sterling gained the most against the Canadian Dollar (1.05%), which in turn suffered from the BoC's statement. Two other significant gains of 0.52% were recorded against both the Aussie and the Kiwi; however, the Pound also lost 0.17% versus the Greenback, 0.10% against the Yen and 0.10% versus the Euro.
he BoE's Monetary Policy Committee voting member Ian McCafferty urged the central bank to raise interest rates now if it intends to keep further rate increases smooth and steady to minimise the disruption to consumers and businesses. McCafferty underlined that the BoE needs to avoid getting "behind the curve" when it comes to making its first interest rate hike since before the financial crisis..
Even though the British economy has been growing strongly for the last two years, the BoE signalled it is in no hurry to hike rates, as eight of the nine rate-setters have continued to vote to maintain rates at record low 0.5%. While markets currently price in an interest rate hike only around the end of 2016, a number of economists expect the central bank to move early next year. BoE Governor Mark Carney has said a decision on a rate hike will become clearer around the turn of the year. McCafferty, the only policy maker who has been voting for a rate increase from August through October this year, argued at the latest MPC meeting that "the likely prospective increase in domestic costs was sufficient to justify an immediate increase in Bank Rate.
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.
UK Retail Sales and US Existing Home Sales
First of all, the UK Retail Sales is due at 8:30 AM GMT. They are released by the National Statistics and measure the total receipts of retail stores. Monthly percent changes reflect the rate of changes of such sales. Changes in Retail Sales are widely followed as an indicator of consumer spending. According to the forecast, a rather significant improvement is expected today, which is to strengthen the Pound against other major peers. Second, from the US the Jobless Claims data is due at 12:30 PM GMT, although it provides information on the employment sector, it tends to have a mild reaction on the USD crosses. Therefore, the US Existing Home Sales is the event to pay the most attention to from the US. It shows the annualized number of residential buildings that were sold during the previous month, except for new construction. The forecast stands at 5.37 million (up from 5.31 million). Improvements are expected, but the data is unlikely to outweigh the UK Retail Sales, unless they disappoint.
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 extends consolidation, to jump towards 1.55
The Cable gave up on its early gains on Wednesday, as the BoE Governor's speech caused investors to lose confidence in the Sterling. However, losses were limited by the 55-day SMA, which should also cause a rebound today. The GBP/USD is unlikely to break out of its consolidation range (between 55 and 100-day SMAs) today. Nevertheless, risks of piercing the immediate resistance persist, as strong fundamental data could provide a sufficient boost for that. Furthermore, technical studies retain their bullish signs, bolstering the possibility of a positive outcome.
Daily chart
The Sterling edged closer to the 200-hour SMA, but failed to rebound by day's end. Nonetheless, the bullish momentum is expected to be regained today, but might be limited around 1.5470, as the pair seems to have entered a descending channel pattern. However, it is too early to confirm the pattern and a breakout in either direction is possible.
Hourly chart
Bulls remain in the majority
Bulls keep growing stronger, as 56% of all positions are now long. The portion of buy orders, on the other hand, slid from 36 to 34%.
The sentiment of other market participants shifted to the bearish side. OANDA now has 54% of traders holding short positions (previously 56%). Meanwhile, 63% of traders at SAXO Group retain a negative outlook towards the Cable, compared to 65% on Wednesday.
Spreads (avg, pip) / Trading volume / Volatility
16% of traders assume the British Pound will cost between 1.58 and 1.60 dollars in three months
According to the survey, conducted between Sep 22 and Oct 22, the Sterling is expected to cost 1.551 dollars in three months. The 1.58-1.60 price interval received the largest number of votes, namely 16%, followed in popularity by two other intervals: 13% of voters believe the Pound will be either in the 1.62-1.64 interval or it will cost less than 1.46 dollars after three months. Nonetheless, the exactly half of the voters (50%) believes that the Pound will fall below the 1.56 major level by January 22.
As predicted by traders, the GBP/USD may close around the 1.538 level by Friday. However, traders are equally divided between the bulls and bears this week.
Last week the gap between the bulls and the bears was not wide, but right now the long and short position ration is equal to one. On the bullish side of the barricade Nuki1981 suggests that the "British Pound is gaining strength due to disappointing data from the US, following the trend of the EUR." Meanwhile, on the bearish side Daytrader21 believes that with the recent inflation figure tumbling and the future rates pricing in the first rate hike only later in 2016, we can expect GBP/USD to be kept under pressure. "First major supports came in the 1.4900-1.4800 area," he mentioned.