- 51% of pending orders in the 100-pip range are to SELL
- Market sentiment has turned bearish
- Gains could be capped near 1.4060
- Upcoming events: UK Manufacturing Production m/m, UK Goods Trade Balance, MPC member Cunliffe to speak
The Sterling jumped against the US Dollar more than 100 pips or 0.76%, just after the Bank of England's monetary policy decision was announced on Thursday, and continued to appreciate further.
The BoE stated that the interest rate needed to be increased sooner and by more than it was thought three months earlier, as the Bank raised economic growth expectations for Britain amid the solid global recovery. The Bank of England anticipated the economy to expand 1.75% year-on-year in average over the next couple of years. The sluggish outlook of the UK was attributable to weaker growth in labour force amid the UK aging population and fewer immigrants coming into the country. Meanwhile. Pay growth would rise to 3% by the end of this year, as projected.
British Manufacturing Production
The only noteworthy fundamentals scheduled for this session is the British Manufacturing Production and Goods Trade Balance for the month of December at 0930GMT. In addition, the BOE Deputy Governor Jon Cunliffe is due to speak at the Asset Management Derivatives Forum at 1645GMT.
GBP/USD stranded in narrow range
The first part of Thursday's trading session was spent with no changes to the overall price level for GBP/USD, as traders were cautious prior to the BOE policy statement scheduled for 1200GMT. Even though the bank kept the rates on hold, Carney's comments about sooner hike strengthened the British Sterling above its two-day resistance of 1.40.
This relatively high position was not maintained for long, as the 200-hour SMA near 1.4075 forced bulls to abandon their positions as a result of which the Pound fell slightly below the 38.20% Fibo and the 100-hour SMA. However, it did remain above the 55-hour SMA which could allow bulls to make further advancement, especially if the UK reports solid manufacturing production data at 0930GMT.
A possible trading range for today could be 1.4060/1.3830.
Hourly chart
The Sterling showed high volatility against the US Dollar on Thursday which was caused by the monetary policy decision from the Bank of England. The pair, however, closed the session with a limited 30-pip increase in price, thus restricting the pair between two Fibonacci retracement levels with different time horizons, namely, the 61.8% and 38.2% Fibo lines at 1.3847 and 1.3938, respectively. The latter was breached early on Friday when the pair advanced towards the weekly S1 and the monthly PP near the psychological resistance of 1.40.
As apparent on the chart, the pair is trading in a three-month ascending channel. The current period of consolidation apparent this week has been near its bottom boundary; thus, a breakout south and a subsequent fall could be due. This scenario is supported by technical indicators.
Daily chart
The bearish market sentiment has taken the upper hand in this session, as 57% of traders are now holding short positions. Meanwhile, 54% of pending orders are to sell the Pound (+3%).
The bearish sentiment of OANDA traders has weakened to 52% of all open positions being short (-3%). Saxo Bank clients share the same sentiment with 60% short positions (+2%).
Spreads (avg, pip) / Trading volume / Volatility