- The number of buy orders edged up from 47 to 48%
- Bullish market sentiment remains unchanged at 59%
- 16% of traders still expect the Sterling to cost between 1.48 and 1.50 dollars in three months
- Closest resistance is at 1.5291, the weekly PP
- Nearest support is located around 1.5237, represented by the 55-day SMA
- Upcoming events today: G7 Meeting, UK Trade Balance, US JOLTS Job Openings
The Sterling experienced mixed performance on Friday. The largest gains of 0.59%, 0.48% and 0.40% were detected against the Kiwi, the Euro and the Yen, respectively. However, losses of 1.06% registered versus the Loonie and 0.61% versus the US Dollar, whereas the Pound remained relatively unchanged against the Swiss Franc, adding 0.01%.
The Bank of England decided to keep its benchmark interest rate at 0.5%, unchanged at the lowest level since 2009. All of the nine MPC's members voted unanimously to hold the UK interest rate in order to wait for recovery rebound. The decision was made mainly due to inflation rate in Britain that turned negative in April and came in at -0.1%, taken down in large part by the declines in oil prices. The officials of the central bank led by Mark Carney expect annual inflation to come back to 2% target by the beginning of 2017.
The decision to hold rates was also supported by the data, that showed growth of the British economy in the first quarter of 2015 slowed to 0.3%, the worst since 2012, which disappointed the markets. Nevertheless, the UK grew at the fastest pace among the group of seven leading industrial nations in 2014. Survey data this week suggested that growth has picked up in the second quarter of the year, albeit not as quickly as BoE's policymakers predicted. In the meantime, a separate release earlier in the week showed the British major services sector plunged in May, signalizing that the recovery from the weak Q1 could be slower than expected. Investors expect the BoE to raise the borrowing costs slowly and gradually, starting in the first half of 2016.
Paul Bednarczyk, head of research at 4CAST, is optimistic with respect to the world's largest economy over the coming months, saying that "we should be seeing some better US numbers coming through," which will lead the Cable to 1.54. Meanwhile, the analyst considers that "over the next three months Sterling will perform well on a trade-weighted basis," but GBP/USD is still likely to decline to 1.4850. In the longer-term perspective, Bednarczyk is also bearish, setting his 12-month forecast at 1.42, which will rather be a story of Dollar strength rather than Sterling weakness.
G7 meeting
There will be no significant data releases concerning both, the US and UK economies. Nevertheless, the G7 meeting takes place in Germany, where finance ministers and central banks from 7 nations will mostly discuss the Greek debt crisis, but also the foreign policy challenges and global economy. The G7 meeting tends to have high impact on the currency market.
Ross Walker, economist at Royal Bank of Scotland Group, shared his view on the short-term forecast for the Cable. He mentioned that GBP/USD has a moderate sell-off and that it could be down to high 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross also 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 the beginning 2016."
GBP/USD remains within the borders of 1.52 and 1.54
Last Friday, the British Pound suffered serious losses, as it fell not just through the immediate support, but also the 1.53 psychological level. Moreover, during the trading session the Sterling even declined beyond the 1.52 area, where the weekly S1 and the 100-day SMA pushed the Cable back to 1.5265. The negative bias is likely to persist today as well, whereas technical indicators retain bearish signals. From below the 55-day SMA now provides support at 1.5237 and should limit any losses, while the weekly PP should limit any gains if such occur.
Daily chart
As expected, after Thursday's substantial hike, the Cable began to lose momentum. Ultimately, the GBP/USD experienced a significant loss on Friday, breaching the 200-hour SMA and even reaching 1.52. The pair is appears to be regaining the bullish trend, but the 200-hour SMA is likely to provide resistance today..
Hourly chart
Bulls sentiment unchanged
For the second time in a row bullish market sentiment remains unchanged at 59%. The number of buy orders, however, edged up from 47 to 48%.
The SAXO Bank traders' sentiment remains bearish, as 53% of all positions are still short. Meanwhile, the sentiment among OANDA traders is even more bearish, as 55% of their positions are now short.
Spreads (avg, pip) / Trading volume / Volatility
16% of traders expect the British pound to cost between 1.48 and 1.50 dollars in three months
The majority of the Dukascopy community (54%) now expects the Sterling to cost less than 1.56 dollars in the months. Nonetheless, the most popular price interval remains between 1.48 and 1.50, but selected by 16% of the traders, while the second most popular price interval is divided between 1.50 and 1.52, chosen by 14% of the surveyed. Meanwhile, the mean forecast for September 8 is 1.5537.