- The portion of sell orders inched up from 63 to 68%
- 64% of traders are long the British Pound
- Immediate resistance is represented by the weekly PP, the monthly S2 and the down-trend around 1.44
- y The weekly S1 at 1.4142 is the nearest support
- 72% of traders reckon GBP/USD will be at 1.50 or lower in three months
- Upcoming events: US Building Permits, US Housing Starts, US CPI and Core CPI
The British Pound weakened against most major currencies on Tuesday, as BoE's Carney stated that there is no need to raise rates in the near future. As a result the Sterling slumped 1.20% versus the Aussie, followed by 0.79% and 0.74% losses against the Swissie and the Euro, respectively. The Pound suffered the least versus the Japanese Yen, having declined only 0.34% against it. At the same time, the GBP/NZD remained relatively unchanged, inching 0.04% higher.
The British inflation climbed to the highest level in eleven months, with transport costs, mainly air fares and petrol being the main contributor to the rise. According to the Office for National Statistics, the consumer price index increased 0.2% in December amid a hefty surge of 46% in air fares in the reported period. Moreover, core inflation, which strips out volatile components such as energy, food and alcohol, rose to 1.4%, reaching the highest rate in more than a year. However, the data showed CPI for the year as a whole in 2015 was zero, the lowest annual reading since records began in 1950, compared with 1.5% in 2014. Benign price pressures and slowing wage growth have forced the Bank of England to refrain from hiking interest rates any time soon, particularly as wage growth has been slowing and the weakness in the world's economy has been undermining British output. Investors' expectations stand for an interest rate rise to occur not earlier than the third quarter of this year.
Furthermore, BoE Governor Mark Carney confirmed that the British economy is not yet strong enough to withstand interest rate hike. The ongoing decline in oil prices, volatility in China and a slowdown in wages growth in Britain have moved the BoE further into wait-and-see mode.
UK Claimant Count Changes much better than expected, focus on US data next
As the UK fundamentals mostly surprised with positive figures today and strengthened the British Pound, later today a number of US fundamentals is due, which is likely to cause volatility in the GBP/USD currency pair. First of all, the US CPI, which is released by the US Bureau of Labor Statistcs and is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. The Core CPI, however, excludes Food and Energy. Both CPIs are forecasted to remain unchanged, but the US Building Permits are expected to fall. They Building Permits show the number of permits for new construction projects. It implies the movement of corporate investments (US economic development) and tends to cause some volatility to the USD. At the same time, the Housing Starts figure is to be released, which is the annualized number of new residential building that began constructing during the previous month, and their number is expected to grow. However, with all CPI should remain the main driver, with any changes pushing the USD crosses 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 at the beginning 2016."
GBP/USD: bearish trend intact
The Cable erased all daily gains on Tuesday, plunging towards the cluster around 1.4150, as the BoE Governor's remarks ruled out the possibility of an early interest rate hike. Today, however, we should see the Sterling rebound and retake the 1.42 level. A strong resistance cluster is located around the 1.44 level, also bolstered by the down-trend, but a surge that high is doubtful. At the same time, the weekly S1 is providing immediate support, whereas the monthly S3 is the level to prevent the pair from falling deeper; a breach of which could ultimately lead to 1.3505—the 2009 low.
Daily chart
The GBP/USD somewhat touched the descending channel's upper borders on Tuesday, but then experienced a sharp sell-off, which led the pair below the 2010 low level. A slight attempt to rebound was made, but the Cable was unable to withstand the pressure, resulting in a slump to 1.4130. At this point, the lower trend-line lost its viability, however, the upper one remains intact and indicates that the bearish trend is to persist until it is broken.
Hourly chart
Bulls remain strong
Today 64% of traders are long the British Pound, compared to 63% yesterday. The portion of sell orders inched up from 63 to 68%.
Meanwhile, other market participants have somewhat similar outlooks towards the GBP/USD, such as OANDA. At the moment 61% of OANDA traders hold long positions (previously 63%); however, among SAXO Bank traders, 53% of all open positions are short, compared to 54% previously.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.50 in three months
The majority of traders (72%) 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 1.48 and 1.50 dollars in three months, chosen by 14% of the surveyed. At the same time, the mean forecast for April 20 is 1.4635.
Participants of the Dukascopy Community Forecasts quiz support the general negative view on the pair, with 62% of all votes being short at the moment.
Babanu, a trader with the Dukascopy Community, expects the Sterling to end the week higher against the US Dollar. He suggests that a rebound might be due, as the in the last month the GBP/USD lost 1000 pips. "This big short move might show some signs of exhaustion soon," he commented.
Meanwhile, among the Community members with a bearish outlook towards the Sterling, AgentSmith believes that "The Pound remains on the offer as it comes under pressure in the crosses, particularly EUR/GBP. I remain bullish on the Pound in the longer term but with such heavy pressure over the last couple of weeks it's a fool's game trying to catch a falling knife." AgentSmith suggests to look for sharp reversals to signal the end of the trend.