- The share of buy orders edged up from 53 to 54%
- Bulls take up 65% of the market
- Immediate resistance is represented by the weekly and monthly S1s around 1.4860
- The weekly S1 at 1.4759 is the nearest support
- 61% of traders reckon GBP/USD will be at 1.54 or lower in three months
- Upcoming events: US Jobless Claims and Chicago PMI
The Sterling experienced mixed performance on Wednesday, as it appreciated against some major peers and declined against the others. The Pound gained the most against commodity currencies, which in turn suffered from a decline in oil prices yesterday. The GBP/NZD edged 0.42% higher, followed by a 0.26% hike in GBP/CAD and 0.13% in GBP/AUD. At the same time, the British currency lost 0.45% against the Swiss Franc and 0.15% versus the Euro, while remaining relatively unchanged against the Yen (0.03%) and the Greenback (-0.01%).
Contracts to buy previously owned homes in the US dropped in November for the third time in four months, suggesting growth in the housing market may be cooling. According to the National Association of Realtors, pending home sales index fell 0.9% to 106.9, compared with a 0.5% gain expected by economists. In October, pending home sales in climbed 0.4%, revised from a previously reported gain of 0.2%. In annual terms, pending home sales increased at an annual 5.1% rate in November, surpassing expectations for a 4.0% rise and following a gain of 2.3% in the preceding month. Pending home contracts become sales after a month or two, and the decreases in recent months could indicate slower growth in homebuying in 2016, when interest rates are predicted to climb. Mortgage rates have only inched higher since the Fed hiked the benchmark rate by a quarter point on December 16, but policy makers expect to continue raising rates next year.
Furthermore, the NAR reported earlier this month that its more closely watched index, final sales of existing homes plunged 10.5% in November to an annual rate of 4.76 million, the lowest level in 19 months. The NAR pointed to delays triggered by new federal rules, coupled with a tight supply of for-sale homes, as the primary reasons.
US Jobless Claims and Chicago PMI
The only two relevant economic data releases are the US Jobless Claims and the Chicago PMI. The Initial Jobless Claims are released by the US Department of Labor and are a measure of the number of people filing first-time claims for state unemployment insurance. In other words, it provides a measure of strength in the labor market. A larger than expected number indicates weakness in this market which influences the strength and direction of the US economy. However, the impact on the market prices is usually rather muted. The second release, namely the Chicago Purchasing Managers Index, is released by ISM-Chicago, Inc; it captures business conditions across Illinois, Indiana and Michigan. This index is an indicator of business trends and it is interrelated with the ISM manufacturing Index. This PMI is likely to be the main driver for USD crosses 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 at the beginning 2016."
GBP/USD under the risk of falling 1.48
Due to poor US fundamental results on Wednesday, the GBP/USD currency pair recovered from intraday lows and ended the day relatively flat. Technical studies continue to give bearish signals today, suggesting the pair is likely to extend its declined and fall under 1.48. Furthermore, the weekly and monthly S1s are still providing resistance around 1.4860, leaving little space for a rally to take place. Immediate support is located at 1.4759 in face of the weekly S2, but another set of fundamental data could cause a rebound towards the 1.4860 resistance cluster.
Daily chart
The Cable was unable to climb over the trend-line yesterday and ended the day unchanged. However, the extension of the current consolidation trend is to bring the pair within the pattern's borders once again, most likely next week; unless the 200-hour SMA weighs on the GBP/USD even more, eventually pushing the Pound below 1.48.
Hourly chart
Bulls remain strong
For the third consecutive day the share of bulls takes up 65% of the market, whereas the share of buy orders edged up from 53 to 54%.
SAXO Group and OANDA have different perspectives towards the GBP/USD. Among SAXO Group traders the majority shifted back to the bearish side, expecting the Pound to weaken against the US Dollar, as 54% of their positions are short (previously 53%). Meanwhile, 63% of OANDA traders have a positive outlook towards the Cable, compared to 61% on Wednesday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.54 in three months
The majority of votes is still on the bearish side, as most of the survey participants (61%) believe the GBP/USD is going to cost 1.54 or less US dollars in three months. According to the survey, the most popular choice was the one implying that the Sterling will cost 1.44 dollars or less in three months, believed by 21% of the voters. Meanwhile, the second most popular choice is the 1.46-1.48 interval, voted for by 16% of the surveyed. At the same time, the mean forecast for Mar 31 is 1.5082.
Meanwhile, this week sentiment among Dukascopy traders has significantly changed, as now 52% of traders predict the Pound to rise in value, while last week this scenario was suggested by 43% of Community members.
Among the traders with a positive outlook towards the Cable, rokasltu commented that after the Fed increased interest rates, the USD got stronger, but not significantly. "As BoE also is expected to start tightening interest rates, I think the GBP/USD will go up," he explained.
At the same time, Williamb believes that the Sterling is to weaken versus the American Dollar at the end of this week. He said that "The recent macro data from the UK may contribute to a possible rate. Therefore, new weakness of the pair is inevitable."