- The share of buy orders fell down to 40%
- 66% of all open positions are long
- Immediate resistance is represented by the down-trend around 1.4316
- The weekly PP at 1.4238 is the nearest support
- 77% of traders reckon GBP/USD will be at 1.50 or lower in three months
- Upcoming events: UK CBI Industrial Order Expectations, BoE Governor Carney Speech, US HPI, US Markit Services PMI, US CB Consumer Confidence
Amid a strong reading of the UK Public Sector Net Borrowing, the British currency appreciated against most major peers on Friday and over the weekend. The largest gains were registered against the Yen and the Swissie, adding 1.23% and 1.15%, respectively. Notable gains were also seen versus the Kiwi (0.98%) and versus the Euro (0.94%), whereas the Sterling advanced only 0.31% against the US Dollar and 0.25% against the Aussie. At the same time, the Pound suffered a 0.72% loss against the Loonie.
Retail trade in the United Kingdom was quite weak throughout the last month of 2015 when the gauge is traditionally expected to pick up due to Christmas holidays. Nonetheless, this December was a disappointing month for British retailers who saw a 1% drop in overall sales on a monthly basis. Such a sharp percentage change, however, followed a revised 1.3% advance a month earlier, meaning last month's development was largely a correction towards the norm. Clothing and footwear stores took the steepest hit in December, with two main reasons of that being warmer than usually weather and floods that held consumers away from stores.
On top of that, analysts are warning that more people are now shopping at online stores, thus decreasing the role of traditional supermarkets. Along with retail sales, Friday data included latest numbers on UK public sector borrowing. Public finances in the second largest economy of Europe improved in December due to a boost from much better tax receipts. Deficit excluding banking sector plunged to 7.5 billion pounds last month, down from 12.9 billion pounds in November and 12.5 billion pounds in December 2014. Even though there are three months to go until the current UK financial year end in March, public sector year-to-date net borrowing has already surpassed the government's target of 68.9 billion pounds, by reaching 74.2 billion pounds. However, January usually is a surplus month, which can improve the overall situation quite considerably.
Another quiet Monday
There are no notable fundamental data releases to influence the Cable on Monday, however, on Tuesday the BoE Governor's speech is likely to cause volatility in Sterling crosses. In terms of fundamental events, the US Consumer Confidence is due. The Consumer Confidence is released by the Conference Board and captures the level of confidence that individuals have in economic activity. A high level of consumer confidence stimulates economic expansion while a low level drives to economic downturn. Furthermore, the Markit Services PMI could also impact the market prices. The Services Purchasing Managers Index (PMI) is released by Markit Economics and captures business conditions in the services sector. As the services sector dominates a large part of total GDP, the services PMI is an important indicator of the overall economic condition in US.
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 confirm the bearish trend
Last Friday the Cable retested the down-trend, but ended the day with a weaker rally of 47 pips, due to a disappointment in UK Retail Sales data. Any attempts to appreciate today should be limited by the down-trend around 1.4316, as there are no clear signs of a breakout to occur. Technical studies, in turn, continue to give bearish signals, suggesting the GBP/USD could turn around and suffer a loss today. As a result, a possibility of the Sterling piercing the immediate support in face of the weekly PP exists, with the pair stabilising closer to the 1.42 major level.
Daily chart
Even though the GBP/USD managed to pierce through the resistance trend-line on Friday, the 200-hour SMA somewhat provided additional resistance and limited the gains. However, the Cable keeps gravitating towards the SMA, struggling to keep edging higher due to lack of impetus.
Hourly chart
Bulls remain strong
Market sentiment remains bullish, now at 66% (previously 67%). The share of buy orders, however, lost 14% points, falling down to 40%.
Meanwhile, other market participants have somewhat similar outlooks towards the GBP/USD, such as OANDA. At the moment 64% of OANDA traders hold long positions (previously 60%), whereas the sentiment of SAXO Bank reached a perfect equilibrium today, compared to 54% of bulls prevailing over bears previously.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.50 in three months
Three quarters of traders (77%) 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 exactly a quarter (25%) of the voters, namely the 1.42-1.44 one, while the second most popular choice implies the Pound is to cost either between 1.48 and 1.50 dollars or between 1.50 and 1.52 dollars in three months, both chosen by 13% of the surveyed. At the same time, the mean forecast for April 25 is 1.4592.