- The number of orders to sell the Sterling increased from 57 to 68%
- 63% of all positions are long
- Immediate support is represented by the Bollinger band around 1.4942
- The weekly S1 at 1.5038 is the nearest resistance
- 67% of traders reckon GBP/USD will be at 1.54 or lower in three months
- Upcoming events: UK Retail Sales, CBI Industrial Order Expectations, US Jobless Claims, Philly Fed Manufacturing Index, US Current Account
The British currency declined against most major peers on Wednesday, amid poor Claimant Count Change data. A strong reading of the UK Unemployment Rate allowed the Pound to advance 20% against the Yen and 0.11% versus the Loonie, whereas the British currency declined 0.78%, 0.67% and 0.40% against the Aussie, the Kiwi and the Swissie, respectively. The Sterling also remained relatively unchanged against the Euro, losing only 0.09%.
British unemployment fell to pre-crisis levels in the three months through October, whereas pay growth continued to slow, bolstering the Bank of England's intention to keep interest rates ultralow. The number of people out of work dropped by 110,000 to 1.71 million between August and October. There were 31.3 million people in work, 505,000 more than a year ago. Consequently, the unemployment rate dropped to 5.2% in the quarter to October, the lowest level in nearly 10 years, whereas economists had expected the jobless rate to stay unchanged at 5.3%.
However, wage growth disappointed, and a sharp drop in earnings over the reported period indicated that interest rates would remain at a record low of 0.5% for longer. Total pay growth climbed by just 2.4% in the three months to October, down from 3% in the three months to September. Bank of England Governor Mark Carney said he would like to see earnings growth above 3% a year before he would increase interest rates. Even though wages have been rising slowly from their post-crisis lows, earnings growth has remained notably below the pre-downturn levels. While regular earnings increased on average by 4% before the economic slowdown, between 2001 and 2008, the same measure of pay climbed just 1.5% on average between January 2009 and September 2015.
UK Retail Sales and Philly Fed Manufacturing Index
There are only two major economic data releases today to influence the GBP/USD currency pair. First of all, from the UK the Retail Sales are due. These Retail Sales exclude fuel and released by the National Statistics. They measure changes in sales of the British retail sector, showing the performance of the retail sector in the short term. Percent changes reflect the rate of changes of such sales. The changes are widely followed as an indicator of consumer spending. A rather sharp rebound is expected in today's release.
From the US side the Jobless Claims are due, although improvements are expected, they tend to have almost no impact on the markets, despite being an important piece of data. As a result, more focus should be on the Philadelphia Fed Manufacturing index, which is a spread index of manufacturing conditions (movements of manufacturing) within the Federal Reserve Bank of Philadelphia. This survey, served as an indicator of manufacturing sector trends, is interrelated with the ISM manufacturing Index (Institute for Supply Management) and the index of industrial production. It is also used as a forecast of the ISM Index. According to the forecast, the index is likely to show a worsened result and, thus, should contribute to the Cable's rebound.
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 at the beginning 2016."
GBP/USD keeps edging closer to wedge's support
Due to the Fed delivering no surprises on Wednesday, the markets had a rather mild reaction to the news. Nonetheless, the Cable ended the day with a slump towards the 1.50 major level remains under the risk of falling for the fourth consecutive day today. The Bollinger band around 1.4942 is now the closest support, but a decline towards the down-trend at 1.4895 is also possible if the fundamental data turns in favour of the US Dollar. On the other hand, the GBP/USD could climb over the immediate resistance at 1.5038, but the bearish outcome is more probably.
Daily chart
The GBP/USD made an attempt to advance towards 1.51, but encountered resistance in face of the 200-hour SMA, which ultimately pushed the Cable down below 1.50. The pair continues to decline and is about to face the Dec low and the pattern's lower trend-line, which both should limit the losses and help the Sterling regain the bullish momentum.
Hourly chart
Market sentiment shifts to the bullish side
Bulls remain in the majority, as 63% of all positions are long, while the number of orders to sell the Sterling increased from 57 to 68%.
SAXO Group and OANDA now have different perspectives towards the GBP/USD. Among SAXO Group traders the majority still believes the US Dollar is to outperform the Sterling, as 53% of their positions are short (previously 68%). Meanwhile, 58% of OANDA traders have a positive outlook towards the Cable, compared to 54% yesterday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.54 in three months
The majority of votes shifted to the bearish, as most of the survey participants (67%) believe the GBP/USD is going to cost 1.54 or less US dollars in three months. The most popular choices are divided between two intervals. The first interval is 1.48-1.50, selected by 16% of the voters, whereas another 16% expect the Sterling to cost less than 1.44 dollars in three months. Meanwhile, the second most popular choice was the 1.46-148 price range, selected by 15% of the voters. At the same time, the mean forecast for Mar 17 is 1.5073.
During December 14-18 time period the Dukascopy Community members are undecided in terms of pair's movement. As predicted by traders, the GBP/USD may close around the 1.508 level this Friday.
Even though traders are equally divided between bulls and bears, a community member under the nickname agd-divisas believes the Cable could still edge higher. "This pair is bullish," he said, adding that "important resistance is at 1.5350 level. I think that at this level, the price can go down."
Meanwhile, on the bearish side ijayakumar suggests that because of the Fed interest rate hike forecast, the GBP/USD might go down; therefore, he is among the other 50% of traders that hold short positions.