- 57% of all pending orders are to sell the Pound
- Long positions take up 63% of the market
- Immediate resistance is represented by the weekly S1 at 1.4414
- y The monthly S2 at 1.4390 are the nearest support
- 64% of traders reckon GBP/USD will be at 1.50 or lower in three months
- Upcoming events: BoE Credit Conditions Survey, US Retail and Core Retail Sales, US PPI and Core PPI, Empire State Manufacturing Index, US Capacity Utilization Rate, US Industrial Production, FOMC Member Dudley Speech, US Preliminary UoM Consumer Sentiment
The British Pound appreciated against both commodity currencies and most major peers, with exception against the Aussie and the Swissie. The Sterling gained the most versus the Kiwi, adding 0.66%, followed by a significant rally of 0.36% against the Yen. Concerning other commodity currencies, the GBP/CAD inched 0.23% higher, while the GBP/AUD declined 0.37%. At the same time, the Cable and the GBP/CHF both remained relatively unchanged, adding 0.04% and losing 0.03%, respectively.
The Bank of England remained split eight-to-one on interest rate decision in January. Yet, the central bank maintained its key interest rate on hold, as falling stock markets spark concerns that the world economy could be experiencing a bumpy ride in the near term, while lower oil prices and sluggish wage growth continue to weigh on inflation. The BoE kept the benchmark rate unchanged at the record low of 0.5%, while Ian McCafferty remained the only dissenter, voting for an immediate hike of 0.25 basis points. In the minutes of the January meeting, the Monetary Policy Committee said the expected recovery in inflation would be "a little more modest than previously assumed," while business surveys signal a slower pace of growth. Policy makers revised downwards their estimates for expansion last quarter and this quarter to 0.5%.
The central bank have maintained borrowing costs on hold for almost seven years and is showing little inclination to start normalizing its monetary policy any time soon. The world's leading banks including Goldman Sachs Group Inc., Bank of America-Merrill Lynch and JPMorgan Chase & Co. have pushed back their expectations for the timing of the first rate hike to the final quarter of the year, while investors doubt the BoE will raise rates until the middle of 2017.
US PPI, US Retail and Core Retails Sales
The most important events today concern the US economy, namely the Retail and Core Retail Sales, the PPI and the Preliminary UoM Consumer Sentiment. The US Retail Sales are released by the US Census Bureau, they measures 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. The Core Retail Sales, however, exclude the automobile sector. A slowdown is forecasted in both Retail and Core Retail Sales. Another important event is the Producer Price Index, which is released by the Bureau of Labor statistics, Department of Labor and it measures the average changes in prices in primary markets of the US by producers of commodities in all states of processing. Changes in the PPI are widely followed as an indicator of commodity inflation. A rather sharp decline is anticipated in the PPI. Furthermore, a number of secondary events could also have an impact on the GBP/USD, help it edge higher or lower.
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 to steer away from 1.44
The Sterling's recent rally against the US Dollar was reduced to zero, with the weekly S1 ultimately holding the gains at 1.4414. The pair remains stuck between the weekly S1 and the monthly S2, while disappointments in today's US fundamentals could cause a breakout to the upside. The second level to limit the losses lies at 1.4567, but it will be difficult to reach. Contrariwise, the Greenback could receive another boost and push the Pound even lower towards the 2010 low at 1.4230, despite the monthly S1 being able to keep the Cable from declining through all of the week.
Daily chart
The Cable remained within the borders of the descending channel for another day on the hourly chart. Trade is still circling the 1.44 major level, but a retest and a possible breach of either trend-line is likely to occur.
Hourly chart
Bulls remain strong
Both long positions and purchase orders remain unchanged today, taking up 63% and 43% of the market, respectively.
Meanwhile, other market participants have somewhat similar outlooks towards the GBP/USD, such as OANDA. At the moment 62% of OANDA traders hold long positions; however, among SAXO Bank traders, open positions are equally divided between the long and the shorts ones.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.50 in three months
The majority of traders (64%) still believe the British currency is to cost 1.50 or less dollars after a three-month period. The most popular price interval was selected by 27% of the voters, namely the 1.42-1.44 one, while the second most popular choice implies the Pound is to cost between 1.50 and 1.52 dollars in three months, chosen by 13% of the surveyed. At the same time, the mean forecast for April 15 is 1.4779.
Although traders' sentiment improved, a significant number still expect a bearish development, namely 60% of them, compared to 71% last week.
One of the traders of the Dukascopy Community believes the Pound could still outperform the US dollar. This trader, babanu, says that in his opinion "the Sterling might look overextended".
At the same time, on the bearish side of the barricade Jignesh suggests that the markets are showing signs of broad based strength in the USD this week. "The GBP has just made a major stop run to take out 2015 lows," he commented, adding that "selling pressure may be a bit lighter here, as the pair starts to approach major yearly support and accumulation may start to occur for the pair".