- The number of buy orders increased from 61 to 64%
- 51% of all positions are long
- 21% 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 weekly S2 at 1.5492
- The nearest support rests at 1.5446, represented by the Bollinger band
- Upcoming events today: US Preliminary GDP, US Jobless Claims, US Pending Home Sales
The Pound declined against most major peers on Wednesday, with exception against the Euro, adding 0.49%. The British currency lost the most versus the Loonie (1.70%), the Aussie (1.64%) and the Greenback (1.38%), while remaining relatively unchanged against the Yen and the Swiss Franc, losing only 0.15% and 0.01%, respectively.
UK annual retail sales growth surprisingly increased this month, due to significantly low cost of living and rising real earnings. The Confederation of British Industry´s distributive trades total sales index surged to +24% in August following a print of +21% a month before, reflecting a pace of growth that was considerably above average for that time of year. The sales in August were supported by clothing and grocers' sales after two-month stagnation. The report also indicated that sales volumes are predicted to increase further in September. Companies increased their payrolls for the first time this year given expectations for a continued improvement in the business conditions over the coming quarter. Expectations for recruitment were at their best since May 2000.
According to the official data, declines in fuel sales as well as clothing and food translated into total retail sales volumes rise by just 0.1% in July. The latest report also confirmed total retail sales fell during the second quarter to 0.7% growth, compared with 0.8% in the first three through March. Despite slowing, quarterly growth should still have a positive contribution to the second-quarter economic output, by approximately 0.04%. Expectations for domestic spending in the UK have been mixed recently, with some analysts warning it could deteriorate even further once the BoE begins to hike its interest rate from the record low of 0.5%, given the burden of household debt and rising house prices.
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.
US Preliminary GDP
At 12:30 PM GMT the Bureau of Economic Analysis is to release the Preliminary GDP of the US. The GDP is forecasted to show significant improvements, thus boosting the US Dollar and putting the rate hike probability as soon as possible back on track. At the same time, the Department of Labor is to release the weekly Jobless Claims figures. Even though this particular data release has little impact on the exchange rate, it is still closely monitored by the Fed officials, helping to determine the future monetary policy. Furthermore, the Jobless Claims are closely correlated with the consumer spending, thus giving more insight on overall economic health in the country. At 14:00 PM GMT the US Pending Home Sales is due, the data of which is also forecasted to show significant improvements, only strengthening the US currency even more if expectations are met.
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 going further down the drain
The Cable sustained unexpectedly heavy casualties on Wednesday, after the US Durable Goods Orders showed a lot better-than-expected results. The GBP/USD not only dropped under the support trend-line, but also breached the three closest supports, stabilising only at 1.5479. The Sterling risks suffering more weakness, as trade opened just under the 1.55 major level, also bolstered by the weekly S2; however, a break through this area would trigger a rally towards the resistance cluster around 1.5555. Technical studies are now giving mixed signals, unable to confirm either scenario.
Daily chart
The Cable declined 265 pips on Wednesday, reaching a fresh two-week low. Although the pair is making attempts at rebounding, risks of edging even lower persist, with the next target located at 1.5424, namely the August low.
Hourly chart
Bulls keep edging closer to equilibrium
Bulls and bears broke out of equilibrium, with 51% of all positions being long. The number of buy orders increased from 61 to 64%.
Other market participants have a different outlooks towards the GBP/USD. The SAXO Group traders' sentiment improved again today, as 51% their positions are now long (previously 40%). At the same time, among OANDA traders, the number of bulls remains unchanged at 58%.
Spreads (avg, pip) / Trading volume / Volatility
21% 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 27 and August 27, 21% 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 1.50-1.52 price interval, selected by 11% of the voters. Meanwhile, the mean forecast for November 27 stands at 1.5729.
Nevertheless, the next trading week assumes the Sterling will rally further, as now almost 82% of Dukascopy Community members are strongly positive with respect to this currency. The mean estimate for Aug 28 is placed around 1.5750, or some 50 pips above the previous Friday's closing price.
Aslamhammad, a trader on the bullish side of the sentiment, assumes the Sterling to outperform the Buck, as the price has been ranging between 1.56 and 1.57 last week. He expects the GBP/USD to close higher this Friday, as the second quarter GDP data from UK was rather good, so it should boost the Sterling to the upside again. Nevertheless, on the lesser side of the traders, namely on the bearish one, megajorko said that "there was a very strong corrective move up to 1.57, which was opposite to EUR movement." He also mentioned that presently the EUR and GBP are in anti-correlation (EUR/GBP is going down), but the upcoming strong US events will push the Cable lower again.