- The share of orders to acquire the Pound inched up from 37 top 39%
- Only 56% of traders now hold long positions (previously 57%)
- 17% of traders assume the Sterling will cost either between 1.60 and 1.62 or between 1.50 and 1.52 dollars in three months
- The nearest resistance is located around 1.5375, the Bollinger band
- Immediate support, represented by the weekly S2, lies at 1.5364
- Upcoming events today: UK Official Bank Rate, MPC Rate Statement, UK Asset Purchase Facility, US Jobless Claims, FOMC Member Brainard Speech
The Sterling suffered serious losses for the second day yesterday. The largest decline was registered against the Japanese Yen, 2.13%, and the Kiwi, 1.81%. Lesser declines were registered against the Euro (1.23%), the Swissie (0.79%) and the Greenback (0.65%). The UK Pound held most resilient versus the Loonie and the Aussie, losing only 0.33% and 0.35%, respectively.
The British manufacturing production unexpectedly dropped in May, while total industrial output beat economists' expectations on the back of a strong growth in oil and gas extraction in more than a year. Manufacturing output declined by a seasonally adjusted 0.6% in May, whereas market participants had expected a 0.1% increase. Measured on an annualised basis, manufacturing production rose 1.0%, against the median forecast for a 1.8% gain, and following the 0.1% rise in April. The data also showed that industrial output climbed 0.4% in May, overshooting expectations for a 0.2% decrease. The extraction of oil and gas surged 7.3%, the biggest growth since February last year, when it soared by 10.5%. Mining and quarrying also recorded a strong growth of 4.9%. The British economy continued to expand steadily in the second quarter, but remained overly reliant on the services sector, which accounts for around 78% of the total economic output. At the same time, growth in manufacturing sector significantly lagged behind, suggesting uneven economic growth. After expanding at the 0.4% rate in the first quarter, the economy is expected growing at between 0.5% to 0.6% in the second quarter.
Britain's economy accelerated speed in the second quarter after a slow start to the year, growing 0.7% from the first quarter, according to NIESR. In annual terms, growth was 2.7%.
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 Official Bank Rate, MPC Statement decision and US Jobless Claims
From the UK side the most important event today is the BoE's interest rate decision. The rate held at an extremely low level of 0.50% for six years. The rates are expected to remain unchanged again, while the bond-buying stimulus program is also likely to remain at £375bn. The estimate of an interest rate hike is due in the second half of 2016, but many economists believe that a hike will be in order in the first half of 2016. Furthermore, the MPC Rate Statement could overshadow the Official Bank Rate, as it is to provide insight on the future monetary policy. From the US side, we should pay attention to the US Jobless Claims, like every Thursday. The figures are forecasted to improve, but the Unemployment Claims tend to have small changes on the exchange rate. The Fed pays close attention to the Labor Market and is awaiting for improvements in order to decide how early to raise interest rates in the US, making the Jobless Claims a high-value report.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 regain bullish momentum
On Wednesday, the Cable fell for the second day in a row, but was unable to reach the 1.53 area. The weekly S2 was capable of providing support to close the trade, even though volatility extended towards the 200-day SMA. Technical studies remain mixed, but the Sterling is still expected to regain some ground today. The nearest significant resistance rests at 1.5456, namely the weekly S1, whereas the 55-day SMA, along with the resistance trend-line, are to limit any substantial gains around the 1.55 psychological mark.
Daily chart
On the hourly chart, the GBP/USD was seen attempting to consolidate, but more pressure followed, forcing the Cable to fall under 1.54, a one-month low. Right now the Sterling appears to be regaining the bullish momentum and could potentially reach the 1.55 psychological level today.
Hourly chart
Bullish market sentiment is weakening
Market sentiment weakened again, as only 56% of traders now hold long positions (previously 57%). The share of orders to acquire the Pound inched up fro, 37 top 39%.
Other market participants appear to have a bearish perspective towards the GBP/USD. The SAXO Group has 53% of short positions (previously 52%), whereas the portion of shorts at OANDA takes up 53% of the market, down from 54%.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders assume the Sterling will cost either between 1.60 and 1.62 or between 1.50 and 1.52 dollars in three months
The majority of survey participants expect the British Pound to cost more than 1.56 dollars within a three month period, namely 64% of them. The 1.50-1.52 and 1.60-1.62 price intervals are now the two ones with the most amount of votes, as 17% of traders chose them. The second most popular choice is divided between three price ranges: 1.58-1.60, 1.62-1.64 and 1.64-1.66, all three selected by 11% of the surveyed. At the same time, the mean forecast for October 9 is 1.5793.
Keeping in mind a lack of reports from Britain during this five trading days and potentially, a stronger Dollar, the depreciation can continue. Nevertheless, traders could pay additional attention to the data on the UK trade balance as well as BoE interest rate decision on Friday. Additionally, almost 64% of votes were bearish, "GBP/USD seems bearish on the daily chart. Greece has voted No in the referendum on Sunday. This means that now Greece might exit the Euro Zone altogether. This uncertainty causes strong risk aversion in markets, as investors could prefer USD over GBP, as a "safe haven".
One of the bullish Dukascopy community members, Stix, said that he sees the following week closing with a test of 1.60 area, being mid-point on the Weekly bias. "Pressure is still currently short, so I am expecting a slight break of 1.54 first", he added. However, STARLINE, a trader with a bearish perspective towards the Cable, mentioned that "the Pound should drop significantly, I believe that all the overall sentiment is negative, the Euro is certainly in focus, and the prospects are very pessimistic."