- The buy order portion slid from 65 to 52%
- The share of long positions takes up 63% of the market
- The main short-term resistance lies around 1.4385
- Support is at 1.4255, namely the weekly S1
- 53% of traders reckon GBP/USD will be at 1.46 or lower in three months
- Upcoming events: UK Average Hourly Earnings Index, UK Claimant Count Change, UK Unemployment Rate, US Building Permits, US PPI and Core PPI, US Housing Starts, US Industrial Production, FOMC Meeting Minutes
Rather poor inflation figures caused the Sterling to sustain serious losses against most major peers on Tuesday. The Pound suffered the most against the Japanese Yen, which in turn was boosted by the return of demand on safe-haven assets. The GBP/JPY dropped 1.36% lower, whereas other notable losses of 0.89% and 0.80% were registered against the US Dollar and the Euro. The British currency also declined against commodity-based currencies, namely 0.69% versus the Loonie and 0.53% versus the Aussie; however, a 0.13% gain was registered against the New Zealand Dollar.
Britain's inflation climbed to the highest level in a year in January as an increase in alcohol and clothing prices pushed up the cost of living. The annual consumer price index rose to 0.3% in January, up from 0.2% in the prior month, according to the Office for National Statistics. Alcohol and tobacco were the main contributors to the increase as they jumped 1.3% compared with January 2015. The ONS reported that inflation also rose as fuel and food prices declined less than they did a year ago. Core inflation, which strips out volatile components such as energy and food, slowed to 1.2%. Inflation is predicted to edge up slowly this year, as the impact of global oil plunge drops out of the headline rate. However, the Bank of England expects the price growth to remain below its 2% target until 2018. The central bank predicts consumer prices to rise to 0.5% by the summer.
Financial markets are not anticipating an interest rate hike until the end of the decade due to mounting uncertainty over the global economy and the oil price rout. The central bank lowered its growth forecasts for the British economy and voted to keep interest rates on hold at 0.5% at the meeting earlier in the month. The BoE revised its forecasts for UK GDP for the next three years to 2.2% for the current year, 2.4% in 2017 and 2.5% in 2018.
UK Claimant Count Change and the FOMC Meeting Minutes
Both from the US and the UK a number of economic data releases are due. Starting with the events concerning the UK economy, first of all, the Claimant Count Change, which is released by the Office for National Statistics. It shows the number of people claiming unemployment benefits during the previous month. It is an important signal of economic health, as the Claimant Count Change is correlated with the labour market conditions. Secondly, the Unemployment Rate, which is the percentage of total work force in the country that is unemployed. The Unemployment Rate is also correlated with labour market conditions. Apart from that, it is also an important event when the matter concerns the country's monetary policy. Both of these events are expected to show improved figures today. Concerning the US economy, although several economic data releases are due, the most important event is 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 the risks to its long-run goals of price stability and sustainable economic growth. Insight concerning this year's rate highs is expected to be provided. A dovish statement is likely to drive the US Dollar lower.
GBP/USD tests water under 1.43 ahead of labour data
Yesterday disappointment in UK's inflation outlook pushed the GBP/USD significantly lower, with the four-week up-trend failing to hold the losses. The Sterling is expected to recover after such a gradual fall, as technical indicators are once again giving bullish signals. Lower unemployment is to boost the Cable, with the closest area to limit the gains located only around 1.4385. However, since the GBP/USD is on the backfoot, we might also observe another slump beyond the immediate support of 1.4255, especially if the fundamental data is in favour of the American Dollar.
Daily chart
On the hourly chart the resistance line is seen clearly prevailing, despite price edging above it more than once. There is still hope for the Cable to return above the 1.43 major level, but a breach of the four-week support line implies that more bearish momentum is to come in the medium term.
Hourly chart
Three brokers - three sentiments
The share of long positions now takes up 63% of the market (previously 60%), while the buy order portion slid from 65 to 52%.
The clients of the other two brokers seem to have different opinions on GBP/USD. OANDA traders are bullish on the UK currency. Right now, 59% of them are long, unchanged since yesterday. At the same time, Saxo Bank traders are net short the currency pair: 53% of open positions are short and 47% are long.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.46 in three months
The majority of traders (53%) believe the British currency is to cost 1.46 or less dollars after a three-month period. The most popular price interval was selected by 15% of the voters, namely the 1.46-1.48 one, while the second most popular choice implies the Pound is to cost either between 1.40 and 1.42 dollars or even less than 1.36 dollars in three months, both chosen by 13% of the surveyed. At the same time, the mean forecast for May 17 is 1.4476.
This week the pair's sentiment strengthened, as now 78% of all votes are bullish on the cross, compared to the previous 66.7%. The average expectation for February 19 stays around the 1.461 level.
A trader with a positive outlook towards the GBP/USD, namely babanu, suggests that "for the British Pound things might develop slightly different than the Euro". He believes that if the weekly pivot will hold, then we might see the previous highs of 1.4650 level reached.
Among the minority of traders, that hold short positions, locked said that he expects the Sterling to continue its bearish trend and end the week lower.