- Share of the sell orders 50 pips from the spot keeps increasing (65%)
- Distribution between the bulls (51%) and the bears (49%) is unchanged
- 17% of traders still see the pair between 1.48 and 1.50 in three months
- Upcoming events: UK Construction Output, CB Leading Index, US UoM Consumer Sentiment, Import Prices
The Great British Pound broadly benefited from hawkish rhetoric of the BoE yesterday, gaining 1.21% against the Swissie and 0.96% against the US Dollar. However, the currency stayed unchanged relative to the Loonie (-0.02%) and underperformed the Japanese Yen (-0.17%).
The Bank of England revised its short term inflation forecast, saying that there is a high probability that consumer prices will slid to the negative territory shortly but highlighted that there is no risk of persistent deflation in the country. BoE Governor Mark Carney said that inflation is seen falling below zero in the coming months on the back of weak oil prices, and the central bank stands ready to deploy more measures to combat prolonged low inflation. Inflation is expected to reach the BoE's targeted rate of 2% by 2017, sooner than it had predicted three months ago. The BoE sees the CPI inflation at 0% in the three months through June of 2015, hinting it may turn negative in spring. Inflation should then rebound at the turn of the year as cheap oil data drops out of annual comparisons.
Additionally, the central bank raised its growth forecast and expected wages to grow faster. Annual GDP growth in 2015 is projected to remain unchanged at 2.9%, while economic output in 2016 has been revised up to 2.9% from the 2.6% estimated in November. The GDP is then expected to slow to 2.7% in 2017. With regards to the UK's labour market, the policy makers left the forecasts broadly unchanged in February. They see the unemployment rate at 5.6% in the January quarter of 2015 and 5.4% at the same time next year. Investors expect the BoE will begin slowly tightening policy in mid-2016.
Low-impact data from the UK; high-impact data from the US
GBP/USD currency pair is likely to be led by the US Dollar today, considering that importance of consumer sentiment and import prices in the United States is higher than importance of data on the construction output and on the composite of leading indexes in the United Kingdom.
GBP/USD breaks the down-trend
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
A belief in a bearish outlook did not justify itself, as the multi-month down-trend was violated yesterday, giving the Sterling room to recover. There may be a short-term downward correction from 1.54 (weekly R1 and 55-day SMA), but new support at 1.53 is supposed to act as a floor. GBP/USD is now expected to test the 100-day SMA at 1.56 in the coming weeks. Another important resistance is at 1.5850, where the monthly R2 coincides with 2013 Q4 low.
Hourly chart
SWFX traders resilient to heightened volatility
So far Pound's appreciation has not affected the distribution between the bulls (51%) and the bears (49%). On the other hand, the share of the sell orders 50 pips from the spot keeps increasing, it has already reached 65%.
As for the sentiment reported by the other brokers, it is becoming less bullish. The percentage of long positions at SAXO Bank decreased from 57 to 53%. The change in the share of bulls at OANDA was smaller but still negative, from 56 to 55%.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders still see 1.50/1.48 in three months
This week traders' expectations changed insignificantly, with 53% of Dukascopy Community members predicting the pair to advance. Nonetheless, the consensus estimate is beneath last week's close, as bearish forecasts were more extreme than the bullish ones. On average the FX Community traders see GBP/USD finishing this week slightly below 1.52.
A proponent of a bullish scenario, geula4x, reckons that "GBP/USD looks slightly bullish on the daily chart", adding that "Resistance lies around 1.5340, the recent high at February 5 and 6". Meanwhile, aslamhammad holds a bearish view on the pair, expecting the Dollar to outperform the Pound because of improving labour market conditions in the United States.