- Purchase orders are now in the majority, taking up 51% of the market
- Only 41% of all positions are long
- 16% of traders expect the Sterling to cost between 1.44-1.46 dollars after three months
- Nearest support lies at 1.4861, represented by the weekly PP, while closest resistance rests at 1.4964, namely the monthly PP
- Upcoming events: UK MPC Official Bank Rate Votes, UK MPC Asset Purchase Facility Votes, US MBA MortUS Existing Home Sales, US Crude Oil Inventories
The Pound was one of the best-performing currencies yesterday, as it appreciated against most major peers. Largest gains of 0.58% and 0.54% were seen versus the Loonie and the Yen, respectively. However, the Sterling remained relatively unchanged against the Kiwi (0.02%) and the Swissie (0.00%).
UK jobless claims dropped to the lowest level in 40 years, while pay growth accelerated, providing Prime Minister David Cameron with a powerful advantage ahead of the general election in May. The Claimant count declined for the 29th consecutive month in March to 772,400, marking the lowest level since 1975, according to the Office for National Statistics. Jobless claims dropped 20,700 last month, taking the rate to 2.3%. As a result, Britain's unemployment rate slid to 5.6% in the three months to February down from 5.8% in the quarter to November, the lowest rate since June 2008.
Meanwhile, wage growth also continued to strengthen. Average weekly earnings, excluding bonuses, rose by 1.8% in the quarter to February, compared with a gain of 1.6% in the three months to January. In February alone, regular pay picked up by 2.2% compared with the same period a year ago. The data also showed private sector regular pay increased by 2.2% in the quarter to February compared with a year earlier. The single month reading showed growth of 2.6%. Including bonus payments, annual earnings growth eased back to 1.7% in the three months to February, after the 1.9% growth in January. This compares with zero inflation in February, which has been caused by a precipitous fall in oil prices.
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.
BoE Minutes and US Home Sales
Today, the BoE is expected to refrain from changing interest rates, while the US Existing Home Sales and the MBA Mortgage Applications are anticipated to increase. These two events in the US should pressure the Sterling; however, the Existing Home Sales data disappointed the last five times. If the same occurs today, the Cable is likely to surge. Moreover, last week the Crude Stocks declined substantially as well, hence; unless the figures improve today, the US Dollar will only weaken more.
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 extends growth
Monday's decline was just a setback in the British Pound's movement. After some volatility, the GBP/USD pair failed to meet expectations, as it slightly edged up during the day. Although the Cable reached the weekly PP at 1.4860 on Tuesday, but bounced back above 1.49. The Sterling is likely to preserve the bullish momentum today. The monthly PP provides strong resistance, as it prevented the pair from advancing through all of April. Meanwhile, technical indicators are giving bullish signals, bolstering the positive outcome.
Daily chart
On the hourly chart the GBP/USD pair is seen falling through Monday and half of Tuesday. A negative bias was expected to prevail, but the Cable unexpectedly edged up yesterday. Today's events will determine whether it is just a setback, or the preservation of last week's bullish momentum.
Hourly chart
Bears grow stronger
Less traders have a positive outlook towards the Sterling, as only 41% of all positions are long. Meanwhile, purchase orders are now in the majority, taking up 51% of the market.
SAXO Group's share of bears returned to its Monday's level of 62%. At the same time, OANDA traders' outlook towards the Pound improved, but still remains bearish with 52% of short positions.
Spreads (avg, pip) / Trading volume / Volatility
16% of traders expect the Sterling to cost between 1.44-1.46 dollars after three months
The majority of the community members, namely 61%, expect the Sterling to cost less than 1.50 dollars after three months. According to the survey, conducted from March 22 to April 22, the most popular price interval was 1.44-1.46, chosen by 16% of the participants. The second most popular price range was 1.42-1.44, selected by 13% of the surveyed.
In a week time, sentiment on EUR/USD did not changed, even became more bearish, as now 64% of traders predict the Pound to lose value.
Aslamhammad, one of the community participants, has a positive outlook towards the Cable this week. He commented that the US Dollar began to weaken, thus there is a possibility of the GBP/USD to exchange higher this Friday. RahmanSL, on the other hand, expects the pair to fall down. He said that "recent gains of Cable are due to steep fall in the European session, as a fresh bid wave caught the US Dollar pushing the Sterling higher across the board." RahmanSL also mentioned that the Greenback was boosted by concerns over the Chinese growth outlook, after the weak Chinese data release.