- The portion of buy orders lost 10% points, falling to 53%
- Market sentiment remains bullish, now at 53%
- The weekly S1 is preventing the pair from edging higher
- The bottom target is the cluster around 1.5190
- 60% of traders reckon GBP/USD will be at 1.54 or higher in three months
- Upcoming events today: UK Manufacturing Production, UK Industrial Production, UK Trade Balance, US Average Hourly Earnings, US Non-Farm Employment Change, US Unemployment Rate, UK NIESR GDP Estimate, US Consumer Credit, FOMC Member Brainard Speech
Today's chart is showing a rather pessimistic Sterling performance. Due to Mark Carney's dovish statement, the Pound dropped significantly lower against other major currencies. The British currency suffered the most from the Kiwi, the Euro and the US Dollar, edging down 1.44%, 1.31% and 1.16%, respectively. The smallest losses, although still rather high, were recorded against the Swissie (0.96%) and the Loonie (0.99%).
The Bank of England pushed the first hike in interest rates since 2009 further into the future, saying inflation would pick up more slowly than originally predicted. Only one BoE official, Ian McCafferty, voted to raise interest rates this month, while the other eight members on the Monetary Policy Committee opted to keep them at a record-low 0.5%. BoE Governor Mark Carney has previously said a decision on whether to raise interest rates would become clearer around the turn of this year. Economists expect a first interest rate rise by the BoE in the second quarter of 2016.
The BoE downgraded its forecast for economic growth for this year and 2016 and warned emerging markets could struggle with slower growth. The central bank expects the British economy to grow 2.7% this year and 2.5% in 2016, whereas in 2017 GDP is predicted to increase 2.7%. Inflation is projected to pick up over the coming months, but less quickly than projected in August, with inflation hitting the target in about 2 years' time. The central bank said that consumer price growth is likely to stay below 1% until the second half of 2016, due to lower costs for energy, food and other imported products. Moreover, Pound's appreciation since March 2013 is also contributing to the current low inflation rate. Economists expect a first interest rate rise by the BoE in the second quarter of 2016.
UK Manufacturing and Industrial Production against the US Non-Farm Payrolls
The UK brings today the Industrial and Manufacturing Productions. The Industrial one is released by the National Statistics measures outputs of the UK factories and mines. Changes in industrial production are widely followed as a major indicator of strength in the manufacturing sector. The Manufacturing Production is released by the National Statistics measures the manufacturing output. Manufacturing Production is significant as a short term indicator of the strength of UK manufacturing activity that dominates a large part of total GDP. Both Manufacturing and Industrial Productions are forecasted to worsen, while the UK Trade Balance to narrow, thus, improve.
Nevertheless, the most attention today will still be paid to the US Labor Market data, namely the Non-Farm Employment Change and the Average Hourly Earnings. The Non-Farm Payrolls are released by the US Department of Labor and present the number of people on the payrolls of all non-agricultural businesses. The monthly changes in payrolls can be excessively volatile, especially after a change of more than 40k employed people expected. The Average Hourly Earnings are released by the US Department of Labor and are a significant indicator of labor cost inflation and of the tightness of labor markets. The Federal Reserve Board pays close attention to when setting interest rates. According to Janet Yellen's testimony, the Fed is to take into consideration all data between now and the December meeting and decide whether delay the rate hike or raise them in December.
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 at the beginning 2016."
GBP/USD on the edge of breaching long-term support
The Cable lost over 170 pips on Thursday, suffering from BoE governor's dovish statement. As a result, the strong immediate support was pierced, causing the GPB/USD to stabilise near the seven-month up-trend. Although the 23.60% Fibo, the Bollinger band and the weekly S1 are bolstering the support line, the broadly stronger US Dollar might cause another decline towards the Sep low of 1.5106. A perfect scenario is a rebound from the up-trend, therefore, preserving the current triangle pattern. Technical studies, however, are now giving bearish signals in the daily timeframe.
Daily chart
The Cable now appears to be stuck between two trend-lines, as the exchange rate gradually fell towards the up-trend yesterday. Even though attempts to limit the losses were made, the GBP/USD keeps testing the support today. The 23.60% Fibo might help the pair to rebound, but so far the situations looks grim.
Hourly chart
Neutral sentiment
Market sentiment remains bullish, now at 53% (previously 51%), while the portion of buy orders lost 10% points, falling to 53%.
The distribution between the bulls and bears at OANDA barely changed, as 57% of open positions are short and 43% are long. Meanwhile, the proportion of bears at SAXO Bank increased today, with the gap between short and long positions wider again. Bulls now take up 42% of the market, while bears-the remaining 58%.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD above 1.54 in three months
There appears to be no clear view in the market how the Cable is going to perform during the next three months, but 60% of survey participants reckon that GBP/USD will be at 1.54 or higher. Judging by the results of the poll conducted in October, 18% of traders expect the Sterling to cost between 1.58 and 1.60 US dollars in the beginning of February. At the same time, 12% of the estimates are that the UK currency will be worth somewhere between 1.54 and 1.56 US dollars in three months. The mean forecast for Feb 6 is 1.5512.
Our respondents, in turn, do not believe that pair will decrease and claim that the closing level will persist during the whole week. Nonetheless, 71% of opened positions are positive, while 28% of voters believe the pair will depreciate, hence, we should not exclude a possible movement even lower.
A trader with a bullish outlook towards the Cable, nuonrg, believes that the GBP Bank Rate on Thursday can cause a thrust to the upside if they follow the Fed. "But first I see a break of a 3 tops high last week. 24 August, 17 Sept, 14 Oct. That needs a retest on level 1.53805 before the bulls will step in," he said. Among the bearish traders, Likerty suggests that the Pound battles important technical areas at 1.5450's. In his opinion it could go both ways, but not too far. "Similarly to the EUR/USD – some bearishness before true reversal is what on the table for this week," the trader mentioned.
On the other hand, nuonrg expects bearish development and states that "the four-hour triple top held the pair capped and price dropped lower", adding that he sees "the down channel continuing to shape the pair with bottom around 1.497 level if it overreacts to the downside".