- The portion of purchase orders fell to 58%
- 61% of all open positions are long
- Immediate resistance is represented by the monthly S1; the weekly R1 and the 20-day SMA around 1.4315
- y The weekly PP at 1.4238 remains the nearest support
- 64% of traders reckon GBP/USD will be at 1.48 or lower in three months
- Upcoming events: UK BBA Mortgage Approvals, US New Home Sales, FOMC Statement, Federal Funds Rate, MPC Member Shafik Speech
BoE's Governor Mark Carney's statement on Tuesday reassured investors' outlook towards the UK economy, causing a buying spree of the British currency. As a result, the Sterling managed to appreciate against most major peers, struggling to post gains only against commodity-based currencies, such as the Kiwi, the Aussie and the Loonie. Nonetheless, the Pound advanced 1.11% against the Swiss Franc, while posting solid gains of 0.83% versus the Yen, 0.71% against the US Dollar and 0.53% versus the Euro. The GBP/NZD remained relatively unchanged, adding only 0.04%, while the GBP/AUD remained completely unchanged. At the same time, the Sterling sustained a 0.51% loss against the Loonie.
The Fed's decision to hike interest rates in December last year partly contributed to the turmoil in emerging markets, Bank of England Governor Mark Carney said. Yet, the core root of the problems does not lie solely in the Fed's action, but in emerging markets themselves. Furthermore, Carney reiterated that the conditions necessary for the BoE's Monetary Policy Committee to start normalizing policy were not yet met. Carney is still looking for the renewal of growth above trend, unit labour costs pickup, as well as a continued firming of core inflation. With oil prices damping inflation, economists have pushed back forecasts for a rate hike to the second half of 2016, with some, including Royal Bank of Scotland and BNP Paribas, not predicting a move until next year.
When asked about his governorship at the BoE, Carney said that he would need to decide this year if he is willing to ask to stay on for a full eight-year term instead of five years he indicated when he was appointed. Carney was named to the role in late 2012 by Chancellor of the Exchequer George Osborne. He succeeded Mervyn King at the London-based central bank in July 2013, meaning he reached the half-way point of the five years he said he will serve at the end of 2015.
Federal Funds Rate and US New Home Sales
Since there are no significant economic data releases concerning the UK economy today, all focus shifts to the US fundamentals. First of all, the Federal Funds Rate decision; the Board of Governors of the Federal Reserve announces an interest rate. This interest rate affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers. It also tends to affect the exchange rate. The rates are expected to be held unchanged, but the FOMC Statement could cause respective volatility, depending on the tone of the statement. Second, the New Home Sales number, which is released by the US Census Bureau and is an important measure of housing market conditions. House buyers spend money on furnishing and financing their homes so as a result the demand for goods, services and the employees is stimulated. Finally, the US Crude Oil Inventories, which measures the change in crude oil storage. Energy prices currently have a great impact on the market and a better-than-expected result is likely to strengthen commodity-based currencies against other major peers.
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 muted ahead of Fed
The British currency was able to recover from daily losses and end the day with a rally, with a six-week down-trend getting breached. Nevertheless, the immediate resistance was not reached, demand around which, around 1.4415, remains strong. Meanwhile, the closest support is still represented by the weekly PP, but the exchange rate is expected to drop lower if the Fed's statement turns out to be hawkish today. Technical indicators also suggest a decline is due, but the Cable has the potential to touch the 1.45 level.
Daily chart
In spite of an attempt to break out of the falling wedge to the downside, a rally was triggered, causing the resistance trend-line to be breached. Even the 200-hour SMA failed to hold the gains, allowing the Cable to reach the highest level in ten days. Another surge today is to indicate a trend reversal from bearish to bullish until the pair reaches another trend-line near 1.50.
Hourly chart
Bulls remain strong
Bull lost some numbers today, as 61% of all open positions are long, compared to 65% of Tuesday. At the same time, the portion of purchase orders lost eight percentage points, falling to 58%.
Meanwhile, other market participants have somewhat similar outlooks towards the GBP/USD, such as OANDA. OANDA's sentiment, however, keeps rather rapidly deteriorating, as 58% of their open positions are long, although unchanged since yesterday. At the same time, the sentiment of SAXO Bank broke out of the equilibrium today, with their bears now outnumber the bulls by 2% points.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.50 in three months
The majority of traders (64%) believe the British currency is to cost 1.48 or less dollars after a three-month period. The most popular price interval was selected by slightly less than a quarter (24%) 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 13% of the surveyed. At the same time, the mean forecast for April 27 is 1.4583.
Meanwhile, the sentiment for the Cable changed on the opposite side during past seven days. The median expectation for Friday of this week is placed around the 1.427 level.
Even though traders are close to being equally divided between bulls and bears, FX-Imcap believes the Pound is to end the week in the green zone against the US Dollar. "Last trading days have been completely bearish for the GBP/USD, as concerns over BoE Governor Carney last speech reinforced that a rate hike might not take place, at least until the end of 2nd quarter," he commented. The trader also gave his prospects towards the Cable, adding that "a psychological support might be reached at 1.39 if bears overtake the lead, however, major clusters supported by 30 day SMA at 1.468 and 55 day SMA at 1.4880 suggest that an up-trend will occur in the next trading days."
At the same time, a member of the Dukascopy Community with a negative outlook towards the GBP/USD, assumes that there will be no interest rate change both from the Fed and the BoE. "The pair is running on a downtrend and after a first slightly contra trend move I expect a down trend continuation reaching 1.412 level," Khimitau said.