- There are 60% of orders to purchase the British Pound
- Bullish market sentiment returned to its Thursday's level of 62%
- 28% of traders believe the British Pound will cost more than 1.60 dollars after a three-month period
- Immediate resistance is at 1.5319 (200-day SMA)
- The nearest support lies around 1.5280
- Upcoming events today: MPC Member Weale Speech, UK CB Leading Index. UK BRC Retail Sales Monitor, US Members Lockhart, Evans and Brainard Speeches
The Sterling declined against most major peers on Friday and over the weekend, amid worse-than-expected Trade Balance figures. The largest losses were recorded versus the Aussie (1.20%) and the Euro (0.91%), followed by moderate decline against the Loonie, the Swissie and the Kiwi. The Pound held most resilient versus the US Dollar, as it edged lower only 0.17%; however, a slight rally of 0.10% was detected against the Yen.
The UK recorded a larger-than-expected trade deficit in August, while construction output dropped at the fastest pace since 2012, suggesting the British economy is losing momentum. The nation's trade shortfall came in at 11.1 billion pounds, compared with an upwardly revised 12.2 billion pounds a month earlier, according to the Office for National Statistics. Economists, however, had predicted a narrowing to 9.9 billion pounds. The UK's deficit on trade in goods and services dropped from 4.5 billion pounds in July to 3.3 billion pounds in August, while exports of goods increased by 0.8 billion pounds to 23.6 billion pounds, driven higher by a 0.6 billion pounds increase in car exports to a record 2.4 billion pounds. Meanwhile, imports declined 0.3 billion pounds to 34.7 billion pounds over the same period.
At the same time, construction output dropped 4.3% after the 1% decrease in July. An unprecedented 8% gain in September would be needed for construction output to be unchanged in the third quarter from the second, the ONS estimated. Slowing global growth as well as a strong Pound are taking their toll on UK companies, leaving the Bank of England in no rush to hike the benchmark interest rate from an all-time low.
Paul Bednarczyk, head of research at 4CAST, is optimistic with respect to the world's largest economy over the coming months, saying that "we should be seeing some better US numbers coming through," which will lead the Cable to 1.54. Meanwhile, the analyst considers that "over the next three months Sterling will perform well on a trade-weighted basis," but GBP/USD is still likely to decline to 1.4850. In the longer-term perspective, Bednarczyk is also bearish, setting his 12-month forecast at 1.42, which will be a story of Dollar strength rather than Sterling weakness.
UK BRC Retail Sales Monitor
Monday is rather poor on fundamental data from both the US and the UK. From the UK the only significant even that could influence the exchange rates is the BRC Retail Sales Monitor, which measures changes in the actual value of retail sales from participating companies with invaluable management information on a regular and reliable basis; it shows the performance of the retail sector. Meanwhile, there is a Bank Holiday in the US, therefore, the UK fundamentals are the main factors to drive the Cable today, with exception of a number of Fed officials scheduled to speak today.
Ross Walker, economist at Royal Bank of Scotland Group, suspects that GBP/USD may descend to 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross 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 attempts to break away from 1.53
Upon reaching the immediate resistance in face of the weekly R3 on Friday, the GBP/USD was pushed back, leading to a fall towards the 1.53 major level. Dips were limited by the anticipated target, remaining a strong support area today, represented by the 20-day SMA, weekly and monthly PPs. However, the 200-day SMA around 1.5319 could limit the Cable's attempts to appreciate today, while the second resistance area is located out of reach. Nevertheless, the Sterling also risks falling deeper towards the weekly PP at 1.5274.
Daily chart
The Cable tested the upper trend-line of the rising wedge on Friday, which caused the pair to bounce back and break through the support trend-line. However, the Sterling still refused to drop below 1.53; this major level, in turn, is now causing the Pound to rebound. Volatility should be limited by 1.5370, namely the area that prevented the Cable from appreciating last week.
Hourly chart
Bulls prevailing over bears
Bullish market sentiment returned to its Thursday's level of 62%, compared to 57% on Friday. There are more orders to purchase the British Pound today, namely 60% (previously 49%).
The sentiment of other market participants also remains bullish. OANDA still has 58% of traders holding long positions. However, 51% of traders at SAXO Group now have a negative outlook towards the Cable, compared to 54% on Friday.
Spreads (avg, pip) / Trading volume / Volatility
28% of traders believe the British Pound will cost more than 1.60 dollars after a three-month period
According to the survey, conducted between Sep 12 and Oct 12, the Sterling is expected to cost 1.5535 dollars in three months. The 1.58-1.60 and 1.60-1.62 price intervals received the largest number of votes, namely 14%, followed in popularity by the 1.62-1.64 interval, selected by only 13% of the voters. However, the overall majority (52%) believes that the Pound will still rise above the 1.56 major level by January 12.