- The share of buy orders gained eight percentage points, up to 63%
- Bulls and bears reached a perfect equilibrium
- 18% of the poll participants expect the British Pound to cost between 1.58 and 1.60 after a three-month period
- Immediate resistance lies in face of the Bollinger band at 1.5701
- The nearest support rests around 1.5610, represented by the 55-day SMA
- Upcoming events today: UK Retail Sales, US Jobless Claims, US Existing Home Sales, US Philly Fed Manufacturing Index
The Sterling experienced mixed performance on Wednesday, as it appreciated against the Loonie and the Greenback, but declined against other major peers. The Pound added 0.62% versus the Loonie and 0.13% versus the Buck, while the largest losses were recorded against the Swiss Franc and the Euro, namely 1.07% and 0.67%, respectively. Furthermore, the British currency remained relatively unchanged against the Kiwi, losing only 0.02%, and the Aussie, losing 0.08%.
The UK inflation rate turned positive in July as the Office for National Statistics said Tuesday that the consumer price index rose to 0.1%, beating a zero growth forecast. Moreover, core inflation, a less volatile measure, which stripped out energy, food, alcohol and tobacco, increased to 1.2% from 0.8%, reaching the highest rate in five months. Measured on a monthly basis, inflation declined 0.2% in July. A recent strength of the Sterling and sharp decline in oil prices has curbed inflation in Britain. The latest data also showed that the retail price index stayed unchanged at 1%, just in line with expectations.
While the figures published were stronger than anticipated, inflation is still well below the Bank of England's 2 % target. Economists say inflation is likely to remain low in the short term. BoE officials led by Governor Mark Carney expect consumer-price inflation to hover around zero for most of this year, before accelerating back to the target during 2016 and 2017. In its latest economic outlook, the BoE stressed that strong Pound and steep drops in oil prices would push down inflation until at least the middle of 2016 and said the impact of the rise in Sterling could persist even longer. Any further upward movement in inflation could trigger the central bank to start raising interest rates as other indicators, including GDP, wage growth and jobless rate, point out the signs of steady recovery in the economy.
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.
UK Retail Sales, US Existing Home Sales and Philly Fed Manufacturing Index
The UK Retail Sales measures the total receipts of retail stores. Changes in Retail Sales is a primary gauge of consumer spending, which takes up the majority of all economic activity. In today's forecast the figures are set to rebound and according to historical data, there is a good chance that the figures will exceed expectations, thus strengthening the Sterling even more. However, from the US side, the Philly Fed Manufacturing Index, which is also expected to improve today, might counterweight on the Cable. Furthermore, the US Existing Home Sales, that shows the annualized number of residential buildings sold in the previous month, except for new construction, is forecasted to decline slightly. Even though the previous readings were rather strong, a worse-than-expected figure might extend the Greenback's decline after the poor inflation data yesterday, building up more concerns about the Fed interest rate hike.
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 endeavours to reclaim 1.57
The GBP/USD tested the 1.57 level, but was still unable to fully breach the resistance area just under the major level. Nonetheless, the Sterling appreciated against the US currency, but a correction is likely to occur today, as the psychological area around 1.5690 keeps pressuring the Cable. From below the pair is supported by a cluster, represented by the weekly pp, 20 and 55-day SMAs, while the trend-line at 1.5556, also bolstered by the monthly PP, should limit any substantial losses. A rally is possible if the fundamentals turns in favour of the Pound, although technical studies remain mixed.
Daily chart
The Sterling tried to pierce the 1.57 major level twice yesterday, but was pushed back after both of those attempts. The pressure from the upside remains, which could push the Cable down to the 200-hour SMA currently at 1.5611.
Hourly chart
Net positions equally divided between long and short ones
Bulls and bears reached a perfect equilibrium today, while the share of buy orders gained eight percentage points, up to 63%.
Other market participants have a different outlooks towards the GBP/USD. The SAXO Group bearish traders' sentiment remains unchanged at 58%. At the same time, bears' defences among OANDA traders keep weakening, as 53% of them hold short positions today (previously 54%).
Spreads (avg, pip) / Trading volume / Volatility
18% of the poll participants expect the British Pound to cost between 1.58 and 1.60 dollars after a three-month period
According to the survey conducted between July 20 and August 20, 18% of traders assume the GBP/USD currency pair will cost between 1.58 and 1.60 dollars within three months. However, the second place is now taken by the 1.52-1.54 price interval, selected by 12% of the voters. The mean forecast for November 20, on the other hand, is 1.5711.
Dukascopy Community members are mostly bullish on the pair, as more than 54% of respondents believe the pair will appreciate this week. The consensus forecast stands at 1.5612.
The sentiment is rather close to being neutral, as traders are almost equally divided between bulls and bears. Student_21, a traders with a bullish outlook towards the Cable, says that the Pound has potential and needs to see how much the resistance at 1.5950 could withstand. However, "it is a very strong resistance", he added. At the same time, Jignesh, another Dukascopy Community member, expects the Sterling to weaken against the Greenback. Jignesh believes the bears and bulls have been fighting within a certain area for a few weeks now, "but the ever so important technical resistance at 1.5655 has yet to be taken out on the 4 Hour chart, and until it does the pair's downside potential remains greater."