- There are more orders to sell (54%) the Pound than to purchase (46%) the currency
- The advantage of bears over bulls is insignificant but growing
- Traders are moderately bearish towards GBP/USD in the long term
- Upcoming events: MPC Rate Statement, US Trade Balance, Unemployment Claims
The Sterling keeps outperforming the market on the back of better-then-expected data. The currency appreciated 1.38% versus the Loonie and 1.29% versus the Euro, losing only against the Japanese Yen (-0.16%).
After growing at the slowest rate in more than a year, the UK services sector experienced a faster expansion last month, beating expectations of 56.6 and easing concerns of the British economy's prospects. The Services PMI in the UK increased much more than anticipated, from a 17-month low of 55.8 in December 2014 to 57.2 index points in January 2015. Employment in the UK has also risen approximately 70,000 new jobs per month, thus increasing the Services PMI's employment index by more than two index points to 57.1.
The British composite PMI, which combines data from construction, services and manufacturing sectors, showed signs of strength, edging up 1.4 index points to 56.9 last month. A lot of companies have expectations of positive business plans for 2015, as business confidence remained quite steady. Inflation on input prices declined to the lowest level since 2009, while output price inflation dropped to a marginal rate. That data will cheer up Prime Minister David Cameron, who hopes the UK economic recovery will persuade voters to grant him to power in a national election on May 7. The first estimate of the December quarter GDP suggested the economic growth decelerated to 0.5% from 0.7% in the preceding three months. However, the headline quarterly GDP figure is a subject to revisions as the first estimate is based only on less than 50% of the data available and included only the output measures of GDP.
MPC Statement at noon; US data to be mixed
As there are no changes expected in the monetary policy of the Bank of England, the main economic events concern the United States. According to the market estimates the trade deficit will contract, while the forecast for the number of people requesting jobless benefits (287K) is higher than the last week's value of 265K.
GBP/USD intends to challenge the seven-month 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
As it turned out, GBP/USD did not stop at the one-month down-trend at 1.5180 as expected but continued to advance north. Accordingly, for the time being the Sterling is likely to preserve its bullish momentum. However, the upside potential is limited, as there is a seven-month down-trend at 1.5280 that should be able to prevent further appreciation of the Pound and turn the currency around.
Hourly chart
Traders open more shorts
The advantage of bears over bulls is insignificant but growing. The difference increased from 4 to 6 percentage points. There are also slightly more orders to sell (54%) the Pound than to purchase (46%) the currency.
The sentiment among traders as reported by OANDA is neutral as well, being that the market is equally divided between the bulls and the bears. Traders at SAXO Bank, on the other hand, seem to a have a different opinion with respect to GBP/USD, as 58% of open potions are currently long.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders see 1.50/1.48 in three months
At the same time, the near-term outlook, as shown by the survey among the FX Community members, is bullish. Despite the negative developments in the pair during the end of the January 26-30 week, the traders have become more positive towards the Cable, as 56% of all votes are for appreciation. The average prediction is now located at the 1.509 level.
According to rokasltu, the "rate seems to have found a good support just below the 1.50 level", adding that "there is potential for the rate to add around 100 pips". On the other hand, Jignesh is less optimistic regarding the Pound, saying that "the pair will continue to consolidate in this area [1.50] for the week towards the downside".