- The share of purchase orders slid from 63 to 59%
- 64% of traders are long the Pound
- The main short-term resistance lies around 1.44
- Support is at 1.4247, namely the weekly S1
- 56% of traders reckon GBP/USD will be at 1.46 or lower in three months
- Upcoming events: UK CBI Industrial Orders Expectations, US Markit Manufacturing PMI, UK Inflation Report Hearings, US CB Consumer Confidence, US Existing Home Sales, MPC Member Haldane Speech
A strong reading of the UK Retail Sales on Friday helped the Sterling outperform most of other major currencies on Friday and over the weekend, except for the Japanese Yen. As a result, the Sterling gained the most against commodity currencies, which in turn weakened on falling oil prices. The Pound added 0.76% against the Loonie, 0.62% versus the Kiwi and 0.52% against the Aussie. The Cable also advanced significantly – 0.48% higher. The only loss of 0.13% was registered against the Japanese Yen, as positive Retail Sales data was unsufficient to erase the losses completely, due to a high demand on safe-haven assets.
British retail sales soared the most in more than two years in January, led by demand for clothing and computers. Total volumes surged 2.3% in the reported month from December, according to the Office for National Statistics. That was much stronger than the 0.8% gain expected by economists and represented the biggest monthly increase since December 2013. Measured on an annual basis, sales soared 5.2%, marking the 33rd straight month of growth. Low inflation, driven by plunging commodity prices, has helped to boost households' spending.
A separate report showed the UK public sector net borrowing excluding banks received a robust boost in the beginning of the year, led by a typical increase of tax receipts in January. Public sector net borrowing excluding banks came in at a surplus of 11.2 billion pounds, which is 1 billion pounds, or 9.7%, above the level seen during the same month a year ago, and the largest January surplus since 2008. A surge in tax receipts at the start of the year was driven mainly by an increase in income tax-related payments, surging by 6.5% to 30.2 billion pounds. Furthermore, VAT receipts, social contributions, and a rise in corporation tax receipts also helped boost the government's coffers.
US Markit Manufacturing PMI
With no significant economic data releases scheduled for today, the only release to make a difference is the US Markit Manufacturing PMI. The Manufacturing Purchasing Managers Index (PMI) is released by the Markit Economics and captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the manufacturing PMI is an important indicator of business conditions and the overall economic condition in the United States. Although the given PMI is expected to worsen, it is unlikely to provide the Cable the sufficient boost to recover after fears of the Brexit caused the pair to plummet.
GBP/USD slumps on Brexit fears
A lot better-than-anticipated UK Retail Sales figures on Friday helped the Cable to overcome the 1.44 mark. However, today the GBP/USD opened with a rather significant bearish gap, amid London's mayor stating he would support the Brexit. Meanwhile, technical indicator signals shifted from bullish to mixed, implying that a negative outcome is more probable by day's end. The weekly S1 at 1.4247 is providing immediate support, but is unlikely to hold the losses. As a result, we might see a large drop below the 1.42 major level if demand at the second target, namely the Bollinger band, is weak.
Daily chart
The British currency extended its trade circling around the 1.43 major level, but upon touching the 200-hour SMA, a bearish gap occurred. The Cable is now poised for more weakness and could extend its decline down to 1.4080, namely to the Jan low.
Hourly chart
Three brokers - three sentiments
Today 64% of traders are long the Pound, compared to 61% on Friday. The share of purchase orders, however, slid from 63 to 59%.
The clients of the other two brokers seem to have different opinions on GBP/USD. OANDA traders are bullish on the UK currency. Right now, 64% of them are long, compared to 60% on Friday. At the same time, Saxo Bank traders are net short the currency pair: 54% of open positions are short and 46% are long.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.46 in three months
The majority of traders (56%) believe the British currency is to cost 1.46 or less dollars after a three-month period. The most popular price interval was selected by 15% of the voters, namely the 1.36-1.38 one, while the second most popular choice implies that the Pound is to cost between 1.40 and 1.42 dollars in three months, chosen by 13% of the surveyed. At the same time, the mean forecast for May 22 is 1.443.