- Purchase orders now take up 54% of the market
- 47% of traders have a bullish outlook towards the Sterling today
- 13% of traders assume the Sterling will cost between 1.42 and 1.44 dollars in three months
- The nearest resistance, represented by the weekly R1, is located at 1.5609, whereas the 200-day SMA acts as the closest support at 1.5439
- Upcoming events: UK Average Earnings Index, UK Claimant Count Change, UK Unemployment Rate, BoE Inflation Report, BoE Gov Carney Speech, US Retail and Core Retail Sales, US Import Prices, US Business Inventories, US Crude Oil Inventories, US 10-y Bond Auction
The Sterling experienced mixed performance over the day. The Pound added 0.55% against the US Dollar, 0.37% against the Yen and 0.17 against the Kiwi, while losses of 0.53% and 0.15% were registered versus the Aussie and the Loonie, respectively. Nevertheless, the British currency remained relative unchanged against the Euro, adding 0.02%, and the Swiss Franc, gaining only 0.01%.
UK manufacturing production rose more than expected in March, while industrial output also overshot economists' forecasts. According to the Office for National Statistics, manufacturing production climbed by a seasonally adjusted 0.4% in the reported month, beating expectations for a rise of 0.3% and following an upwardly revised 0.5% gain in the preceding month. Measured on an annualized basis, manufacturing output edged higher 1.1%, topping estimates for a 1.0% gain, after increasing at a rate of 1.2% in February. The report also showed British industrial production rose the most since September as oil and gas extraction soared and manufacturing increased for a second month. Output gained 0.5% in March from the previous month, whereas economists expected no change. In the beginning of the year, industrial output was revised to show a 0.1% increase from a 0.1% decline, though the ONS acknowledged the effect on GDP would be limited. Oil and gas extraction soared 4.9%, the most since February last year. From a year earlier, industrial output climbed 0.7%.
Meanwhile, the NIESR estimated UK gross domestic product rose 0.4% in the three months through April, following the 0.3% increase in the March quarter. NIESR expects that a softening of GDP growth in the first quarter was temporary and the economy should expand by 2.5% for the year as a whole.
Jamie Jemmeson, head of trading at Global Reach Partners, gave his prospects on the effect the elections might have on the British currency: "I think that generally in terms of you looking at Sterling volatility, a Tory Government would be more positive for the Pound." He still mentioned that "Generally, if you look at historically how the Pound has re-answered, it prefers a Tory Government."
UK Labour Report and US Retail Sales
UK jobless claims in March dropped to the lowest level in 40 years, but are expected to increase to slightly increase today. The Unemployment Rate, on the other hand, is likely to decrease by 0.1 percentage points, but it seems to have little effect on the BoE's monetary policy. Nonetheless, later today we also expect the US Retail Sales data for April. Even though the Retail Sales returned to growth in March (after declining for the past three months), but growth is expected to slow down dramatically again. As a result, the UK fundamentals should outweigh the ones in the US with more positive data, thus, strengthening the Sterling.
Ross Walker, economist at Royal Bank of Scotland Group, shared his view on the short-term forecast for the Cable. He mentioned that GBP/USD has a moderate sell-off and that it could be down to high 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross also 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 charges to 1.58
On Tuesday, the Sterling appreciated against the US Dollar again and established a new 2015 high. Immediate resistance cluster failed to stop the rally, while the monthly R1 at 1.5712 succeeded, making it the new high. The trading day, however, ended with the Cable stabilising at 1.5665. Technical studies retain bullish signals, suggesting further surge. The closest resistance maintains its position around the monthly R1, while a hike to 1.58 is more likely.
Daily chart
The 1.5622 target was easily reached yesterday, as the pair soared even towards 1.57 during the day. However, every consecutive sharp hike is becoming smaller, suggesting that the Cable is likely to break through the support trend-line and edge down.
Hourly chart
Bears still prevailing over bulls
The percentage of traders with the bullish outlook returned to its Monday's level of 47%, while the number of buy commands added three percentage points. Purchase orders now take up 54% of the market.
Market sentiment of SAXO group traders remained unchanged, as still 72% of their positions are short. Meanwhile, OANDA traders' sentiment shifted closer to the equilibrium, as 51% of positions are short, compared to 55% yesterday.
Spreads (avg, pip) / Trading volume / Volatility
13% of traders assume the Sterling will cost between 1.42 and 1.44 dollars in three months
The mean forecast for August 12 is 1.5208, although the majority of voters, 60%, still believe that the British Pound will cost more than 1.50 dollars after a three-month period. Only 13% of the survey participants expect the point to cost between 1.42 and 1.44 dollars, while the second most popular choice was divided between 1.48-1.50 and 1.56-1.58 price intervals, both chosen by 12% of the surveyed.
During May 11-15 time period the Dukascopy Community members assume this currency pair to slump further, since more than 63% of all votes are bearish. As predicted by traders, the GBP/USD may close around the 1.529 level this Friday.
Concerning the bearish outlook towards the Cable, a member of the community, Stix, expects a retest of the daily support area. He also mentioned that the GBP/USD pair is supported by the weekly frame, so it is not likely to suffer significant losses. Geula4x, another community member, assumes the Sterling will appreciated against the US Dollar, as the pair seems very bullish on the daily chart. Geula4x concludes that after testing a support area around 1.51, the Pound moved sharply higher and tested the resistance at 1.55. He anticipates the Cable to test this resistance level again this week and break higher towards 1.56.