- The number of buy orders decreased, now they account for 46% of all commands
- Long positions now take only 42% of the market (previously 43%)
- Mean forecast for July 14 is 1.4874
- Nearest resistance lies around 1.47 psychological level, while closest support rests at 1.4623, represented by the Bollinger band
- Upcoming events: UK CPI, RPI and PPI, US Retail Sales and Core Retail Sales, US PPI, US Core PPI, US Business Inventories
The British Pound performed rather well on Monday, as it appreciated against most major peers. The largest gains of 1.54% and 1.39% were recorded against the Aussie and the Kiwi, respectively, following with lesser additions versus the Euro (0.64%) and the Loonie (0.54%).
The annual rate of consumer price inflation in the UK is predicted to have remained unchanged at 0% in March, whereas some economists argue the rate slid further into the deflationary territory as the effects of steep declines in energy and food prices early this year could peak in March. Cost of living in the UK dropped to 0% in February, hitting the lowest rate on record. The fall was triggered primarily by precipitous decline in food and transport prices. Core inflation, which strips out volatile components, is also expected to have remained from the previous month at 1.2%, marking the lowest level since December 2008. Other relevant data showed by prices in British shops had continued to slide into deflation territory for the 23rd straight month in March and hit the lowest level on record, according to the British Retail Consortium. The inflation data is due out later today.
In its March forecast, the Bank of England kept its near-term inflation outlook unchanged, saying the inflation rate is more likely than not to slid below zero in the first half of this year and then hover near that level for the rest of the year, before ticking up only slowly thereafter when this year's declines in energy and food prices drop out of the twelve-month comparison. Yet, the central bank revised down its medium-term inflation outlook due to risk of diverging monetary policy, stronger growth in the UK compared with the Euro area, which will put upward pressure on the Sterling.
In light of the recent data, Ian Stewart, chief economist at Deloitte, reckons "the UK has quite good momentum," which largely stems from the exports and the consumer. He also sees "decent recovery" in the investment, and this is likely to result in the UK being "one of the fastest growing economies in Europe." At the same time, Steward does not consider the elections to be a major risk factor for this recovery, though he does acknowledge a likelihood of greater volatility in financial markets in the run-up to the general election.
According to the economist, the general effect of strong economic data out of the UK should be supportive of the Sterling, particularly against the Euro, while concerning the speculations on the UK leaving the European Union, Stewart thinks this is a low-probability event, with the chances that are "well below 50%," since most political parties and a large portion of business and media would likely campaign in favour of continued membership.
UK CPI to stay unchanged, US Retail Sales to rise
The Office of National Statistics in the UK is to release the CPI number today. The inflation is expected to remain flat. This rises concerns over deflation in the United Kingdom, and may pressure the Sterling against the Greenback. Furthermore, later today the US Retail Sales are expected to show growth, which only bolsters the negative bias for the Cable.
David Starkey, market analyst from Cambridge Mercentile, said that the BoE is most likely going to leave the rates unchanged. However, he also mentioned that "there is certainly a bit of dissent amongst the BoE, their chief economist suggested that there could be room for a cut if inflation continues to track negative, while Carney has openly and publicly suggested that the next move is going to be a hike." The analyst also gives his prospects for the near future, saying that "dissent is probably good, the BoE is going to be analysing the situation closely, the majority of the members still lean towards a hike, one descending voice does not suggest that it is going to be a cut in the near term."
GBP/USD experiences a setback
The Sterling keeps surprising, as it edged up on Monday, instead of slumping versus the US Dollar. Even though there were in fact fluctuations to the downside, the Cable still added 31 pips, but was unable to erase Friday's losses. Moreover, the 1.47 area was not reclaimed, and the pair is likely to retreat further away from this level today. The technical studies remain mixed, but a fall at least to 1.46 is a high possibility amid the fear of deflation in the UK.
Daily chart
The hourly chart shows that on Monday the Sterling managed to break the down-trend, which the currency followed for half of the last week. The Cable was seen attempting to approach the 1.47 level at the beginning of Tuesday, but bounced back and started falling again. Yesterday's gains were shallow, and can be easily negated today.
Hourly chart
Market sentiment worsens
SWFX traders' outlook towards the Pound deteriorated, with long positions now taking only 42% of the market (previously 43%). The number of buy orders decreased as well, now they account for 46% of all commands.
Market sentiment of SAXO Group traders shifted to the negative side, as 52% of all positions are now short. Meanwhile, OANDA traders' outlook towards the Cable became less bullish compared to yesterday: 53% of positions are long the Sterling, and there were 57% just 24 hours ago).
Spreads (avg, pip) / Trading volume / Volatility
Mean forecast for July 14 is 1.4874
According to the survey, taken between March 14 and April 14, the Sterling is expected to cost 1.4874 dollars in three months. The most popular price interval was 1.44-1.46, chosen by 17% of the traders. The second place is tied between two intervals: 1.48-1.50 and 1.54-1.56, both selected by 12% of traders. Nonetheless, only 41% of the surveyed expect the Pound to cost more than 1.50 dollars.
This week Dukascopy traders are more bearish with respect to the British currency's perspectives than before: only 46.2% of all participants expect appreciation of the Sterling.
A trader with a bullish perspective towards the Cable, Likerty, mentioned that the Pound tested a very powerful support at 1.4590 and "as long as it sits above – perspective for notable bullish correction is possible. However, geula4X, another community participant, is short the Sterling. He argues that "GBP/USD seems quite bearish on the daily chart," as "the the price has broken down below the 1.4700 key support." Furthermore, geula4X adds that "March 13 support is now ready to act as resistance on any bounce higher," while "new support lies around 1.4545, the closing price of weekly candle of June 7, 2010."