- The share of purchase orders declined from 54 to 44%
- Traders' sentiment remains bullish at 52%
- 14% of the poll participants expect the British Pound to cost between 1.48 and 1.50 dollars after a three-month period
- Immediate resistance lies in face of the 200-day SMA around 1.5327
- The nearest support rests at 1.5265, represented by the weekly PP
- Upcoming events today: US Labor Market Conditions Index, US Consumer Credit Change
The British currency appreciated against most major peers on Monday, amid investor's sentiment improvements and Chinese stock market stabilisation hopes. The largest gains were recorded against the Swissie and the Kiwi, as the Sterling added 0.94% and 0.88% against them, respectively. The Australian Dollar, however, was most resilient, allowing the Pound to advance only 0.36% against it.
Growth in the UK services sector, the key pillar of the British economy as it accounts for around 78% of the nation's economic output, unexpectedly slowed in August. Markit's services PMI declined to 55.6 down from 57.4 in July, hitting the lowest level in more than two years. The gauge of new business in the services industry plunged to 56.2 in August, the lowest since April 2013, from 58.6 in July. The data also revealed business expectations among service companies at the lowest since February, while input-price inflation slowed for a third straight month to the weakest since January.
The recent manufacturing and construction data suggest the pace of economic growth is set to slow to 0.5% this quarter, from 0.7% in the three months through June. However, the Bank of England predicts a growth rate of 0.7% in both the second and third quarters. Meanwhile, NIESR said in its latest outlook that it expected UK GDP to slow down in the third quarter, but growth would remain 2.5% this year. The CBI revised up its outlook for the British economy to an increase of 2.6% this year, before accelerating further to 2.8% in 2016, driven primarily by rising business investments and productivity, as well as strong domestic demand.
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.
US Consumer Credit Change
Attention should be paid to the US Labor Market Conditions Index, which indicates the labor market activity, however, it tends to have little impact on the exchange rate, as most of the indicators used in its calculations were already released previously. The second event is the US Consumer Credit Change – an amount of money that individuals borrowed. It shows if consumers can afford large expenses, which can fuel economic growth. However, a high figure may also indicate that the economy is overheating, as consumers borrow in order to live beyond their means. Furthermore, with the slowdown in world's second largest economy, concerns of the Fed refraining from hiking interest rates in September grow. As a result, the US Dollar is suffering from the speculation today.
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 poised to extend the rally
The Cable managed to recover on Monday, erasing Friday's losses and stabilising just above the weekly pivot point. After being oversold, the British Pound appears to have begun recovering. With the continuation of the rally, the Sterling should pierce the 200-day SMA, thus, returning from the July's low and edging closer to a tough resistance cluster around 1.55 before the MPC votes on Thursday. However, a breach of the weekly PP might trigger further losses all the way down to the May low just under 1.51, as technical studies are giving distinctly bearish signals.
Daily chart
The June low provided sufficient support for the third time on Monday, causing the Cable to rebound and pierce the resistance trend-line of the descending triangle pattern. The rally extended through Monday morning as well, helping the Sterling to breach the 200-hour SMA and climb above the July's minimum. The next resistance from here lies at 1.5436, namely the previous week's high.
Hourly chart
Bulls keep growing stronger
Traders' sentiment remains bullish, but at 52% (previously 58%). Meanwhile, the share of purchase orders declined from 54 to 44%.
Other market participants also have a positive outlook towards the Sterling. For instance, 60% of OANDA's traders hold long positions, whereas among SAXO Group traders, only 51% of all positions remain long, down from 56%.
Spreads (avg, pip) / Trading volume / Volatility
14% of the poll participants expect the British Pound to cost between 1.48 and 1.50 dollars after a three-month period
The 1.48-1.50 price interval is now the most popular choice among all of the votes, collected between August 8 and September 8. The given interval was chosen by 14% of the poll participants each, whereas the second price ranges, both selected by 13% of the voters, imply that the Sterling will cost either between 1.58 and 1.60 dollars or between 1.58 and 1.60 dollars in three months. However, the mean forecast for December 8 is 1.5536.