- The share of buy commands increased to 55%
- Bullish traders' sentiment returned to its Monday's level of 52%
- 17% of the poll participants expect the British Pound to cost between 1.60 and 1.62 dollars after a three-month period
- Immediate resistance lies in face of the 20-day SMA at 1.5555
- The nearest support rests around 1.5543, represented by the 55-day SMA
- Upcoming events today: MPC Official Bank Rate and Asset Purchasing Facility Votes, US Existing Home Sales, US Crude Oil Inventories
The Sterling retains its title of one of the worst-performing currencies. The Pound declined against most major peers, with the largest losses recorded against the Euro, namely 1.03%. Lesser declines of 0.80%, 0.76% and 0.66% were detected versus the Kiwi, the Aussie and the Swiss Franc, respectively. However, the Cable remained relatively unchanged, down only 0.10%.
UK public sector borrowing declined in June, as income and corporation tax receipts soared to record levels. According to the Office for National Statistics, public sector net borrowing excluding banks dropped by 0.8 billion pounds to 9.4 billion pounds in June, compared with 10.2 billion pounds in June 2014 and hitting the lowest level for any June since 2008. Nevertheless, economists had expected the indicator to decrease further to 8.5 billion pounds. In the financial year so far, borrowing has fallen by 6.1 billion pounds to 25.1 billion pounds. Income tax receipts increased to 11.5 billion, while corporation tax brought in 1.7 billion pounds, both record monthly highs. Public sector net debt at the end of June 2015 stood at 1.513 trillion pounds, or 81.5% of annual UK economic output, up from 80.8% in May.
In the budget on 8 July, Chancellor George Osborne revised his annual forecast for net public sector borrowing excluding banks to 69.5 billion pounds, or 3.7% of GDP, compared with the 75.3 billion pounds forecast at the last budget in March. The government is aiming to eliminate the budget deficit by 2019 and to run a 10 billion pound surplus in 2020 and in subsequent years. Chancellor George Osborne announced 37 billion pounds of spending cuts during this parliament in the summer Budget.
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 be a story of Dollar strength rather than Sterling weakness.
BoE's interest rate and US Existing Home Sales
The MPC Official Bank Rate is expected to remain at a record-low level for another period, as well as the MPC Asset Purchase Facility. These are the only two important events concerning the British Pound today. From the US side attention should be paid to the Existing Home Sales. After reaching a level of 5.35 million on May, the June's figure is expected to a high, unseen for almost two years. However, the Homes Sales figures have a rather high chance of disappointing. Regardless of the outcome, the US fundamentals are unlikely to outweigh the UK ones and, thus, unlikely to turn the tables in the Greenback's favour.Ross Walker, economist at Royal Bank of Scotland Group, suspects that GBP/USD may descend to 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross 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 locks on new target of 1.57
The Cable failed to appreciate yesterday, but the 20 and 55-day SMAs still prevented the pair from edging lower. The support remains strong and is expected to cause the Sterling to finally rebound today. The immediate resistance cluster, namely the weekly and monthly PPs, are unlikely to prevent the Pound from surging. Thus, the 1.56 should be easily retaken, while a hike to 1.57 is also possible if the fundamental data provides a sufficient boost. Meanwhile, technical studies are giving mixed signals, unable to confirm the scenario.
Daily chart
The Sterling kept sliding down yesterday, but the 200-hour SMA provided some support and somewhat limited the losses. Today the Cable nearly managed to negate this week's losses, until the exchange rate declined back to 1.56. Nevertheless, the rally is expected to reach last week's high after the fundamental data releases.
Hourly chart
Bulls outnumbering the bears once again
Bullish traders' sentiment returned to its Monday's level of 52%, compared to 55% yesterday. The share of buy commands, on the other hand, increased to 55%, up from 53%.
Other market participants retain a bearish outlook towards the GBP/USD. The SAXO Group traders' sentiment remains unchanged, with 55% of their traders holding short positions. At the same time, OANDA's market sentiment shifted to the bullish side once again, as the share of shorts now akes up 51% of the market.
Spreads (avg, pip) / Trading volume / Volatility
17% of the poll participants expect the British Pound to cost between 1.60 and 1.62 dollars after a three-month period
According to the survey conducted between June 22 and July 22, 17% of traders assume the GBP/USD currency pair will cost between 1.60 and 1.62 dollars within three months. However, the second place is taken by the 1.50-1.52 price interval, selected by 13% of the surveyed. The mean forecast for October 22, on the other hand, is 1.5737.
This week, the Cable is seen to finish the week at around the 1.564 level, as the vast majority of survey participants are bullish on the currency pair. Currently, 77% of all polled traders are optimistic on the future of the pair, compared with 62.5% last week.
More than three quarters of traders expect the Sterling to outperform the American Dollar by the end of the week. One of the traders with a bullish perspective towards the Cable, iiivb, said that "GBP is playing as a safe-haven, while the Euro value is being repriced due to Greek bailout." Stix, on the other hand, holds a bearish view on the GBP/USD currency par. He assumes that the price is currently supported by a lot of average line supports; therefore, sideways movement is his estimation. "I see a slight bearish trend in this sideways movement", he mentioned.