- The number of orders to acquire the Cable increased from 48 to 64%
- 59% of traders still have a positive outlook towards the Sterling
- 16% of traders still expect the Sterling to cost between 1.48 and 1.50 dollars in three months
- Closest resistance is at 1.5360, the 200-day SMA
- Nearest support is located around 1.5291, represented by the weekly PP
- Upcoming events today: UK Trade Balance, US JOLTS Job Openings
The British Pound mostly suffered losses on Monday, with exception against the US Dollar and the Loonie. The Sterling declined the most versus the Euro (1.04%), the Kiwi (0.89%) and the Swiss Franc (0.77%), following with lesser slumps of 0.53% and 0.41% against the Aussie and the Yen, respectively. Nevertheless, the Pound advanced against the Canadian Dollar (0.23%) and the Greenback (0.52%).
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.
UK Trade Balance and US JOLTS Job Openings
The Trade Balance, in this case concerning the UK, is closely linked to the currency demand. Although there was little change over April, the figures were still slightly worse, as well as for the preceding month. A slight improvement is expected today, but is unlikely to have a serious impact on the Cable if the data meets expectations. Later in the day there will also be a data release concerning the US Job Openings. This particular release can impact the currency market due to the Job Openings indicating the health of the country's economy. The Number of new jobs in May is expected to increase, and last week's Non-Farm Payrolls data is only bolstering the possibility of today's data to exceed the expectations. Overall, we should see the Greenback outperform the Sterling.
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 locked in between 1.52 and 1.54 despite rally
The Sterling surprised with its performance yesterday, as it almost erased last week's losses. The weekly PP was unable to prevent the rally, whereas the 200-day SMA succeeded. The Cable is struggling to pierce the SMA today, which is likely to push the pair back down. Moreover, a strong resistance cluster around 1.54 will not allow the Cable to advance, while technical studies retain bearish signs, bolstering the possibility of a negative outcome. The weekly pivot point around 1.53 is now the closest support and should limit the losses.
Daily chart
Despite succeeding in stopping the rally several times yesterday, the 200-hour SMA finally gave in at the end of the day. The resistance was breached, and the Cable surged up to a daily peak of 1.5363. However, if the Sterling fails to overcome the 1.54 major level, it is likely to undergo a correction and fall back to the 200-hour SMA.
Hourly chart
Bullish sentiment unchanged
Long positions remain unchanged for the third time, as 59% of traders still have a positive outlook towards the Sterling. The number of orders to acquire the Cable increased from 48 to 64%.
The SAXO Bank traders' bearish sentiment remains unchanged, as 53% of all positions are still short. Meanwhile, the sentiment among OANDA's traders slightly improved, but remains bearish, as 52% 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 1.5543.