- Purchase orders now account for 63% of the market
- 47% of traders are long the Pound today (previously 49%)
- 14% of traders assume the Sterling will cost between 1.48 and 1.50 dollars in three months
- The 200-day SMA at 1.5456 acts as the closest resistance, while the nearest support rests at 1.5252, namely the weekly PP
- Upcoming events: UK Trade Balance, US Non-Farm Payrolls, US Unemployment Rate, US Average Hourly Earnings, FOMC Member Dudley Speech
The British Pound was one of the best-performing currencies yesterday, as it appreciated against most major peers. Substantial gains were recorded against the Aussie, and the Euro, adding 0.77% and 0.71%, respectively. The Sterling gained slightly less versus the Loonie (0.66%), the Kiwi (0.63%) and the Swissie (0.62%), whereas the smallest gain was detected against the Yen (0.21%). The Sterling remained relatively unchanged against the US Dollar for the most part of the day; however, it added 1.12% later in the evening.
Activity in the UK services sector accelerated more than expected in April amid growth of new business, while job creation increased at a strong pace. The UK services sector, which accounts for around 78% of the whole economy, stayed firmly above the contraction line for the 28th straight month in April as the Markit/CIPS services PMI gauge advanced to 59.5, up from the preceding month's 58.9, and above the market consensus of 58.5. However, Markit reported that prices charged by service firms dropped for the first time in six months and were at their lowest in more than three years, reducing the chances of the Bank of England hiking interest rates this year.
The services PMI followed much weaker-than-expected equivalent surveys from the manufacturing and construction sectors, which showed parts of the UK economy are struggling, and fuelled concerns that the British recovery was faltering. In the first quarter of the year, growth in Britain's overall economy slowed to just 0.3%. Britain's National Institute for Economic and Social Research also said that it expected growth would accelerate again, although the weak first quarter weakened its forecast for British growth in 2015 as a whole. NIESR revised down its growth outlook for 2015 from 2.9% down to 2.5%. This compares with the growth of 2.8% seen in 2014.
Francesca Panelli an analyst from Oxford Analytica, gives her opinion on the overall health of the UK. She said that "uncertainty related to the upcoming UK election may weigh down the services sector, because it's a very sensitive sector to political development." Francesca expects the UK economic growth to pick up later in the year. She elaborated that "the slowdown in services should prove transitory, we had better evidence from higher frequency PMI over the first quarter of the year, and so I think momentum could improve ahead."
Jamie Jemmeson, head of trading at Global Reach Partners, gave his prospects on the effect the elections might have on the British currency: "I think that generally in terms of you looking at Sterling volatility, a Tory Government would be more positive for the Pound." He still mentioned that "Generally, if you look at historically how the Pound has re-answered, it prefers a Tory Government."
UK Trade Balance and US Non-Farm Payrolls
The British Trade Balance is expected to edge closer towards and equilibrium. Although the figures are to improve, the US Non-Farm Payrolls are also expected to show strong data. Moreover, the unemployment rate in the US is likely to fall a bit. As a result, the US fundamentals should outweigh the ones in the UK, and Sterling could decline, unless it will retain the strength from after the elections.
David Starkey, market analyst from Cambridge Mercentile, mentioned that "there is certainly a bit of dissent amongst the BoE, their chief economist suggested that there could be room for a cut if inflation continues to track negative, while Carney has openly and publicly suggested that the next move is going to be a hike." The analyst also gives his prospects for the near future, saying that "dissent is probably good, the BoE is going to be analysing the situation closely, the majority of the members still lean towards a hike, one descending voice does not suggest that it is going to be a cut in the near term."
GBP/USD to erase last week's losses
The Cable's behaviour fell in line with expectations, as the Sterling appreciated against the US Dollar yesterday. The initial resistance failed to stop the surge, as the GBP/USD settled at 1.5397, the weekly R1. The rally is expected to extend today, with the closest resistance now at 1.5454, represented by the 200-day SMA. However, we should not rule out the possibility of a correction due to strong US fundamental data expectations. Meanwhile technical indicators retain bullish signals, suggesting the pair will rise.
Daily chart
Even though the 1.52 level was breached yesterday, the Pound still managed to regain bullish momentum. A substantial hike took place, which erased last Friday's losses. The GBP/USD pair is seen gaining more ground, attempting to stay over the 1.55 level. However, last week's high might force the Sterling to bounce back and lose some value.
Hourly chart
Market sentiment edged closer to equilibrium
Market sentiment slightly worsened, as 47% of traders are long the Pound today (previously 49%). Purchase orders increased by 14 percentage points, now accounting for 63% of the market.
SAXO Group traders' sentiment remains unchanged, with 63% of positions being short. Meanwhile, OANDA traders now have a bearish outlook towards the Cable, with 55% of positions being also short.
Spreads (avg, pip) / Trading volume / Volatility
14% of traders assume the Sterling will cost between 1.48 and 1.50 dollars in three months
The mean forecast for August 8 is 1.5055, while the minority (48%) of survey participants still expect the Sterling to cost more than 1.50 dollars in three months. The most popular price intervals is 1.48-1.50, chosen by 14% of the surveyed. The second most popular choice is taken by the 1.42-1.44 price interval, selected by 13% of the voters.
This week's sentiment on the Pound is completely opposite to the one seen a week before, with 67% of SWFX traders waiting for the Cable to drop this week. At the same time, the average expectation for May 8 stays broadly unchanged at last Friday's level of just above 1.515.
Soladood, one of the community members, has a bullish outlook towards the GBP/USD pair this week. He suggests that the bullish trend persists, the pair is just having large pullbacks, but is still going north. Meanwhile, Ayub11, another community member, assumes the Cable will decline, as he said that "queens have no fundamental or technical reason to break 1.5547 level". Ayub11 assumes that the bullish scenery is all fake amid the elections in the UK, thus; he assumes the Cable will fall down to 1.4937.