- The share of buy orders slid from 51 to 43%
- 59% of all open positions are long
- Immediate resistance is represented by 20-day SMA and the weekly PP around 1.5120
- The weekly S1 around 1.5038 is the nearest support
- 69% of traders reckon GBP/USD will be at 1.54 or lower in three months
- Upcoming events: UK Average Earnings Index, UK Claimant Count Change, Jobless Claims, US Building Permits, US Housing Starts, US Capacity Utilization Rate, US Industrial Production, US Crude Oil Inventories, FOMC Statement and Funds Rate
The Sterling ignored the British inflation data on Tuesday and declined against most major peers. The Pound suffered the most against the Kiwi, the Loonie and the US Dollar, losing 0.82%, 0.70% and 0.68%, respectively. Lesser declines were registered against the Yen (0.16%) and the Euro (0.10%), whereas the GBP also remained relatively unchanged against the Swiss Franc, losing 0.06%, and the Aussie, adding 0.01%.
British inflation rebounded slightly in November after being in negative territory for two months in a row. Nevertheless, growth in consumer prices remained near zero for 10 consecutive months, giving the Bank of England ample scope to decide when to hike interest rates even if the Fed takes action this week. According to the Office for National Statistics, annual consumer price inflation climbed 0.1% last month from October's reading of –0.1%, aided by smaller-than-expected falls in the prices of alcoholic drinks, tobacco and transport. The UK inflation has stuck in a narrow range between –0.1% and +0.1% since February, mainly due to a decline in oil prices. However, robust growth in Britain's economy means the central bank have been less concerned about persistent deflation than their European colleagues. Core inflation, which strips out volatile components such as energy, food, alcohol and tobacco, climbed 1.2% from 1.1% in October. Last month the BoE predicted inflation to stay below 1% for the first half of next year.
A separate report showed house price inflation in October increased 7.0%, compared with 6.1% in September and marking the fastest price growth since March. Prices in London alone surged by 7.7%.
Fed Rate decision remains the main driver
A number of important economic data releases are scheduled for today, both from the US and the UK. From the UK the Claimant Count Change, the change in the number of people claiming unemployment benefits during the previous month, is expected to fall. However, the Average Earnings Index is forecasted to worsen; thus, the effect on the Sterling crosses could be mixed.
Later today a number of important events from the US side is also due, such as the Building Permits, the Industrial Production. Nevertheless, all these events are overshadowed by the Fed's interest rate decision today. The Fed is expected to hike interest rates today for the first time in the last ten years. This moment was in anticipation for the last year and is likely to cause great volatility in either direction, depending on the decision.
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 at the beginning 2016."
GBP/USD: all eyes on the Fed
On Tuesday the Sterling suffered another gradual decline against the US Dollar, with trade closing only at the second support, namely the weekly S1. With the US rate hike looming closer the Cable is poised for a third consecutive day of weakness, which could lead the pair under 1.49 and, thus, pierce the support trend-line. Even though the trend-line is also bolstered by the monthly S1 and weekly S2, losses might exceed this area if the Fed delivers an interest rate hike. On the other hand, a much more dovish statement today is likely to cause a rally that would touch the resistance line around 1.5260.
Daily chart
Upon testing the 23.60% Fibo on Tuesday again, the GBP/USD currency pair bounced back, piercing through the 200-hour SMA and falling down to 1.5030. The pair is now located in the middle between the falling wedge's borders and is now likely to test one of them after the fundamental data results set the direction for the Cable.
Hourly chart
Market sentiment shifts to the bullish side
Traders still expect a bullish reaction from the GBP/USD, as 59% of all positions are long. The share of buy orders slid from 51 to 43%.
SAXO Group and OANDA now have different perspectives towards the GBP/USD. Among SAXO Group traders the majority believes the US Dollar is to outperform the Sterling, as 68% of their positions are short. Meanwhile, 54% of OANDA traders have a positive outlook towards the Cable, compared to 50% yesterday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.54 in three months
The majority of votes shifted to the bearish, as most of the survey participants (69%) believe the GBP/USD is going to cost 1.54 or less US dollars in three months. The most popular price interval is the 1.48-1.50, chosen by slightly less than a fifth (18%) of the voters, while the second choices in popularity are again divided between two intervals. The votes imply that the Sterling will cost either between 1.46 and 1.48, or less than 1.44 dollars after three months. Both of these price ranges were chosen by 16% of survey participants. Meanwhile, the mean forecast for Mar 16 is 1.5057.
During December 14-18 time period the Dukascopy Community members are undecided in terms of pair's movement. As predicted by traders, the GBP/USD may close around the 1.508 level this Friday.
Even though traders are equally divided between bulls and bears, a community member under the nickname agd-divisas believes the Cable could still edge higher. "This pair is bullish," he said, adding that "important resistance is at 1.5350 level. I think that at this level, the price can go down."
Meanwhile, on the bearish side ijayakumar suggests that because of the Fed interest rate hike forecast, the GBP/USD might go down; therefore, he is among the other 50% of traders that hold short positions.