- There are relatively less buy commands than yesterday, 57% compared to 61%
- 52% of open positions are long and 48% are short
- 17% of traders see 1.50/1.48 in three months
- Upcoming events: UK Manufacturing Production, Industrial Production, NIESR GDP Estimate, US JOLTS Job Openings, FOMC Member Lacker Speech
The Pound performed poorly yesterday, losing against all its major counterparts, as Friday's disappointing news keeps demand for the Sterling depressed. GBP/NZD plunged 0.85%, while GBP/CAD fell 0.62%.
According to the information published on Feb 6, the British trade deficit ballooned to its biggest level since 2010 last year, as exporters were hit hard by the ongoing weakness in the Euro zone, the UK's main trading partner. According to the Office for National Statistics, the overall trade gap rose to 34.8 billion pounds in 2014, reflecting the 14,6 billion pound drop in exports over the year as well as the 7.3 billion pound decline in imports. In December alone, the shortfall rose more than expected, up from 1.8 billion pounds to 2.9 billion pounds. Despite declining oil prices, the value of oil imports rose largely due to significantly bigger volumes imported to the UK. Despite the unexpected increase of deficit in the total trade in December, the overall fourth quarter deficit narrowed the most since the end of 2011, as the trade in goods deficit contracted by 2.2 billion pounds, partly reflecting the smaller value of fuel imports. It is expected that the fourth-quarter trade data is likely to have a less negative impact on GDP compared to the third quarter results, when net trade deducted 0.2 percentage points of the total economic output.
Exports climbed 0.1% in December while imports soared by 2.7%, pushed up by a nearly 40% jump in the volume of oil imports on the month, reversing a trend of declining oil imports in previous months. Exports to countries outside EU in December fell, but these drops were largely compensated by a rise in exports to the US, Saudi Arabia and Japan, while imports from non-EU countries soared particularly from the US and Norway.
Slower manufacturing production
Consensus forecast for the UK Manufacturing Production is slower growth than a month before. After a 0.7% increase in December the market estimates the industrial output to expand merely by 0.3%. Industrial production, on the other hand, should improve by showing a positive 0.3% change after a 0.1% contraction.
As for the Inflation Report later this week, Stephen Pope, managing director at Spotlight Ideas, in an interview to Dukascopy TV spoke about Carney lowering the target inflation. He also sees "the idea of rate increases from the BoE is being kicked right toward the end of 2015", as "the economic numbers of late have been slipping, and that is not helpful to the current coalition government".
GBP/USD stabilises at 1.52
Simon Smith, Chief Economist at FXPro, advises not overestimate bullish potential of the US Dollar in 2015. According to him, "we will see Dollar strength through the year, but it's going to be a very difficult year in terms of trends".
As for the Sterling itself, Charles Purdy, CEO of Smart Currency Exchange, sees weakness in the nearest future, arguing that "the UK election will count against Sterling" in terms of "higher levels of uncertainty". According to the analyst, GBP/USD is likely to fall to 1.46 by the end of March. However, in a year he expects the exchange rate to recover to 1.48, after the BoE hikes the interest rates in the second half of 2015.
Daily chart
The Cable declined to 1.52 yesterday, where it can find some support before likely ceding more ground. In the short run the downside is limited by the weekly and monthly PPs. However, at the same time there is a major falling resistance line at 1.53 that is expected to drive the currency pair lower. During the coming days GBP/USD may re-visit the tough support at 1.50, violation of which will imply a sell-off down to the 2013 low at 1.48.
Hourly chart
SWFX traders undecided
The SWFX market participants remain undecided with respect to the Sterling, being that 52% of open positions are long and 48% are short. As for the pending orders, right now there are relatively less buy commands than yesterday, 57% compared to 61%, as demand appears to be weakening.
Meanwhile, OANDA and SAXO Bank clients exhibit more confidence in bullishness of the GBP/USD. At the moment 56% of open positions at OANDA are long. The advantage of longs at SAXO Bank is more pronounced at 18 percentage points.