- The number of buy orders declined from 55 to 53%
- Bulls and bears have reached a perfect equilibrium
- 20% 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 weekly R1 at 1.5638
- The nearest support rests around 1.5594, represented by the monthly PP
- Upcoming events today: UK Net Lending to Individuals, UK Mortgage Approvals, US Pending Homes Sales, US Crude Oil Inventories, FOMC Statement and Federal Funds Rate
The British Pound appreciated against some major currencies, but also declined against the others. The largest gains of 0.54% and 0.51% were recorded against the Yen and the Euro, respectively, following with a 0.30% gain versus the US Dollar and 0.23% against the Swissie. The Sterling also lost 0.99% against the Kiwi, 0.70% versus the Aussie and 0.54% versus the Loonie.
British economic growth accelerated in the second quarter, fuelling speculation about the first rate hike in interest rates since the financial crisis. The UK economy grew by 0.7% in the April-June period, according to the Office for National Statistics' preliminary estimate, compared with the 0.4% expansion in the beginning of the year. Measured on an annual basis, economic output rose by 2.6% in the second quarter. The economy's pickup was driven by the services sector, which disappointed in the first quarter, but now looks set to benefit from low inflation and higher earnings. The industrial sector also enjoyed a solid recovery, as the extraction industry in the North Sea recovered after months of low oil prices. Mining and quarrying activity rose at the fastest pace in more than 25 years, supported by tax cuts for oil and gas producers introduced in March. The first estimate of GDP is based on about 40% of the available economic data and is subject to revision. The second estimate is due in about a month's time.
The BoE's Monetary Policy Committee will share its view on rates on 6 August, with expectations increasing that there could be a split among its nine board members. Economists say a number of factors are weighing against a rise in rates, including zero inflation which is below the 2% goal that the Bank of England has been set.
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.
FOMC Statement
The markets are primarily focusing on the Federal Open Market Committee Statement, which was anticipated for quite some time now. In the previous Statement, the Fed indicated that the US economy is growing, after slowing down in winter. The Fed should also grow more confident to finally raise interest rates, although the Fed's Chair stated that the rate decision is dependent on whether the labor market and inflation are strong enough. The Fed is also expected to provide insight on the date of the rate hike, since September is looming closer. However, at this point, any news about an approximate date are likely to strengthen the US currency and we should see the Cable edge lower today.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 risks retreating to 1.55
The Cable behaved according to the forecast yesterday, as it managed to stabilise above 1.56 major level. However, the weekly R1 was not reached and will doubtfully be taken today, as a correction is expected. The support cluster around 1.5545 could limit the losses, while a drop further below towards the support trend-line is more likely. Furthermore, there is a chance of the trend-line being breached, which would result in the Sterling falling below 1.55. Meanwhile, technical studies retain their mixed signals, unable to confirm the bearish outcome.
Daily chart
The Cable not only managed to pierce the 200-hour SMA yesterday, but even close trade above the 1.56 major level. Even though the Sterling has been rising for the third day early morning today, the tide has recently turned. The Pound is expected to retreat towards the 200-hour SMA and possibly cross it back to the downside.
Hourly chart
Bulls and bears are equally divided
Bulls and bears have reached a perfect equilibrium today, whereas the number of buy orders declined from 55 to 53%.
Other market participants now have a different outlooks towards the GBP/USD. The SAXO Group traders' sentiment worsened once more, as 55% of all their positions are now short. At the same time, OANDA's market sentiment has also reached a perfect equilibrium.
Spreads (avg, pip) / Trading volume / Volatility
20% 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 29 and July 29, 20% 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 divided between two price intervals, 1.52-1.54 and 1.58-1.60, both selected by 13% of the surveyed. The mean forecast for October 29, on the other hand, is 1.5686.
Traders' predictions changed dramatically from the previous week, as now 71% of Dukascopy Community members are predicting the pair to decline. Alongside, the average forecast for the end of the week is placed around the 1.554 level.
From the larger [bearish] side, Rivan, one of the community members, stated that in his opinion the Economic data is not strong enough to support the hawkish BoE, therefore, he expects the US Dollar to outperform the Sterling by the end of the week. However, there are those with an optimistic view towards the Cable, namely Tommaso, another member of the Dukascopy community. "The bullish trend line seems still intact and can reach 1.5775 level." He also mentioned that the Dollar and British Pound are showing the same strength, thus, only really important economic releases can reverse the bullish trend.