- 59% of all pending orders are to sell the British currency
- 73% of traders have a positive outlook towards the Pound
- Immediate resistance is at 1.2531
- The closest support is around 1.24
- Upcoming events: US Durable and Core Durable Goods Orders, US Crude Oil Inventories, US New Home Sales, US Markit Manufacturing PMI, US HPI, FOMC Meeting Minutes
British retail sales grew at the fastest pace since 2002 in October, helped by colder weather and Halloween, official figures revealed on Thursday. According to the Office for National Statistics, total sales volumes rose 1.9% last month, following the preceding month's upwardly revised gain of 0.1% and surpassing the 0.5% increase forecast. On an annual basis, retail sales climbed 7.4% in October, posting the strongest pace since April 2002. The October figures provide further evidence that consumer confidence stays relatively intact after the Brexit vote. Retail sales data tend to be extremely volatile month-over-month; however, they grew 5.9% in the three months to October compared to a year ago. Clothing sales increased 5.1% on a monthly basis, the largest gain since March 2014.
Nevertheless, earlier this week Mark Carney, Governor of the Bank of England, said that prices will rise markedly in the upcoming months amid the steep fall in the value of the Sterling. Moreover, the Bank of England now expects inflation to hit 2.7% next year. After the release, the British Pound rose to $1.2507 before falling back to $1.2480. Against the Euro, it advanced to 85.77 before declining back to 85.93.
Today's focus is on the US Durable Goods Orders and the FOMC Meeting Minutes
The main fundamental events today are from the US side, namely the US Durable and Core Durable Goods Orders. They measure the cost of orders received by manufacturers for durable goods, which means goods planned to last for three years or more, such as motor vehicles and appliances. As those durable products often involve large investments they are sensitive to the US economic situation. The final figure shows the state of US production activity. The Core Durable Goods Orders, however, the transport sector in order to capture a more accurate calculation. Nevertheless, the most important event on Wednesday will be the FOMC Meeting Minutes. FOMC stands for the Federal Open Market Committee, that organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses and risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy. Furthermore, there are some secondary events, such as the US New Home Sales and the Markit Manufacturing PMI. The New Home Sales are an important measure of housing market conditions. House buyers spend money on furnishing and financing their homes so as a result the demand for goods, services and the employees is stimulated. As for the Markit Manufacturing PMI, it captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the Manufacturing PMI is an important indicator of business conditions and the overall economic condition in the US.
GBP/USD: downside risks persist
On Tuesday the GBP/USD currency pair weakened once again, but this time with the support cluster around 1.24 limiting the losses. The Cable appears to have established a broadening rising wedge pattern, currently putting the lower trend-line to the test. Fortunately, the given trend-line is reinforced by the 20-day SMA, the weekly and the monthly PPs, which altogether are likely to prevent the Sterling from sustaining sharp losses. However, a lot depends on today's US fundamentals: should they turn in favour of the US Dollar, the Pound could be seen reaching the 1.23 mark, causing the wedge to lose its credibility.
Daily chart
Even though the British currency surged beyond the 200-hour SMA on Monday, the exchange rate still returned lower on Tuesday. For the moment the 1.24 major level appears to be providing sufficient support, but a slump lower, namely towards the up-trend, is still possible.
Hourly chart
Traders mostly bullish
SWFX market sentiment improved once again, as 73% of traders now have a positive outlook towards the Pound (previously 71%). As for the pending orders, 59% of them are still to sell the British currency.
A similar situation is observed elsewhere. For example, 60% of positions open at OANDA are currently long. This is more than the share of shorts (40%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 69% of traders being long and 31% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect no major changes
By the end of the next three months traders expect the Cable to be higher than the level where it is now. While the current price is around 1.24, the average forecast for November 22 is 1.2328. Furthermore, the 1.18-1.20 and the 1.26-1.28 intervals are now the most popular ones, having 14% of the votes each. On the second place in terms of the votes re the 1.16-1.18 (14%) and 1.20-1.22 intervals, followed also by the 1.14-1.16 interval with only 11% of the votes. Moreover, 59% all survey participants believe the Cable is to fall under 1.24.