- 55% of orders are to buy and 45% are to sell the Pound
- 52% of traders are holding long positions and 48% are holding shorts
- 16% of the poll participants expect the British Pound to cost between 1.48 and 1.50 dollars after a three-month period
- Bullish potential is limited by 1.5526/1.5491
- Main near-term support is the 200-day SMA at 1.5338
- Upcoming events: UK CPI (Aug), US Retail Sales (Aug), US Core Retail Sales (Aug), Capacity Utilisation Rate (Aug), Industrial Production (Aug)
Yesterday the Pound was the second worst performer after the Euro, relative to which the Sterling appreciated 0.17%. The largest decline was recorded against the Australian Dollar, which became 1% more expensive in the GBP/AUD pair.
British construction output unexpectedly fell in July, reversing a bounce in the previous month. The gauge posted a 1% decline, missing the estimate of the 0.5% pickup after an unrevised 0.9% rise in June. On an annual basis, the output dropped by 0.7%, compared with forecasts of the 0.6% rise. A major driver of the decline was a year-on-year fall in the amount of new housing being built, which decreased by 2.5%. At the same time, construction of public housing plunged by a hefty 15.6%, while the 0.8% growth in private construction was the slowest since March 2013 as well. However, the ONS did not revise the 0.2% growth rate it recorded for the sector in the second quarter, saying it would wait until more comprehensive annual statistical revisions for Britain's official data later this month.
Kristin Forbes, a member of the MPC, warned in her Friday's speech that the BoE may have to increase its interest rate sooner than expected in order to fend off inflation. She also added that the movements in Sterling's exchange rate have been a key factor allowing the MPC to keep interest on hold, even though the domestic economy showed signs of solid recovery.
Meanwhile, 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 pressure the Cable to slide to 1.54. Meanwhile, the analyst considers that "over the next three months the 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 data to have more influence on the pair than US
Since in the run-up to the main event of the week the US Dollar is likely to have muted reactions to economic releases, today's key event for GBP/USD should rather be UK inflation instead of the US retail sales data. Price level in the United Kingdom is expected to stay unchanged after increasing by 0.1% in July.
Ross Walker, economist at Royal Bank of Scotland Group, suspects that GBP/USD may descend to 1.50 by around the middle of 2015, and 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: risks skewed to the downside
The latest rally of GBP/USD ended just before the Sterling hit the 50% Fibonacci retracement of the Aug 25-Sep 4 decline. Accordingly, the bias is to the downside, which is also confirmed by the majority of the technical indicators giving ‘sell' signals. However, in order to revisit the August low the Pound will have to penetrate the 200-day SMA at 1.5338 first. The bullish potential of the pair is currently limited by a dense supply area between 1.5491 and 1.5526.
Daily chart
The reason why we were bullish the Pound in the near term is no longer there - the up-trend has been broken to the downside. As a result, there is now nothing separating the spot price and the 200-hour SMA, which could be tested already today, unless the UK data surprises to the upside.
Hourly chart
SWFX market remains neutral
There is still no significant difference between the amounts of bullish and bearish market participants. Right now 52% of traders are holding long positions and 48% are holding shorts. A similar situation is with the orders: 55% are to buy and 45% are to sell.
In contrast, other brokers report there to be slightly more short positions than long ones. For example, today 49% of OANDA traders are bulls, although yesterday they were net long (56/44). Sentiment in SAXO Bank is without any noticeable changes - 46% of positions are long.
Spreads (avg, pip) / Trading volume / Volatility
15% 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 11 and September 11. The given interval was chosen by 16% of the poll participants each, whereas the second price ranges, all five selected by 10% of the voters, imply that the Sterling will cost either between 1.46 and 1.48 dollars or somewhere between 1.54 and 1.62 dollars in three months. However, the mean forecast for December 11 is 1.548.
Among the Dukascopy Community members there are more people who expect the Pound to appreciate relative to the Dollar this week, namely 54.5% of them.
Jignesh speculates that the Fed is not going to hike at this meeting, which may lead to a decline in the Dollar's value. However, he added that "upside may be limited as the pair has broken a significant up trend line on the daily a few weeks back". In contrast, ssmoker expects a bearish reaction after the FOMC statement this Thursday. According to him, the currency pair could drop as many as 681 pips in the aftermath of the rate announcement.