- Percentage of buy orders fell from 55% down to 39%
- Bulls take up 59% of the market
- 16% of the poll participants expect the British Pound to cost between 1.48 and 1.50 dollars after a three-month period
- Immediate resistance is at 1.5370/63
- A close below 1.5318 will imply a sell-off back down to the August low
- Upcoming events: UK Average Earnings Index (Jul), Claimant Count Change (Aug), Unemployment Rate (Jul), US CPI (Aug), Core CPI (Aug)
A second day in a row the British Pound was the second worst performer, though this time after the Swiss Franc instead of the Euro. While GBP/CHF inched up by mere 0.07%, GBP/NZD and GBP/CAD managed to move 0.61 and 0.59% south respectively.
The UK annual rate of inflation returned to zero in August after a positive reading in July, driven by falls in fuel and clothing prices. According to the Office for National Statistics, British consumer prices remained flat in August, compared with a year earlier, following an annual 0.1% gain in the prior month and staying in line with expectations. Month-on-month, the CPI rose 0.2% in the reported month after dropping into negative territory in July. The core CPI inflation, which excludes volatile food and energy costs, also decelerated in line with predictions to 1.0% after rising to 1.2% in the preceding month.
Another bunch of data from the UK revealed that factory gate prices fell 0.4% in August and were down 1.8% lower than a year earlier, while input prices declined 2.4% on the month and by 13.8% on the year. Meanwhile, with inflation in the UK hovering around zero, the Bank of England is not under immediate pressure to raise rates from their current ultra-low level of 0.5%, though Britain's economy is showing solid growth. Therefore, a decision on when to hike interest rates is likely to come into sharper focus at the turn of the year.
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.
US inflation likely to dominate Tuesday
Today the Cable will have plenty of drivers from both sides. In the morning we will get an update on the state of the UK labour market. Growth in the average earnings is expected to accelerate to 2.5%, while the number of people claiming unemployment benefits should fall by 5.1K after dropping 4.9K a month earlier. An important piece of the US data will come out at 12:30 pm GMT. According to the consensus forecast headline inflation will drop to zero after the previous reading of 0.1% recorded for July.
GBP/USD faces 200-day SMA
There is a high chance we are going to see a bullish correction in the nearest future after yesterday's drop. The Cable has also just hit the 200-day SMA, which further increases the probability of a rally. The immediate resistance is at 1.5370/63, created by the weekly pivot point and the 20-day SMA. Soon thereafter the currency pair is expected to resume the decline. A close below 1.5318 will imply a sell-off back down to the August low.
Daily chart
In the hourly chart, not only did the Sterling approach the 200-hour SMA, but it also breached the moving average, which means there are now even less reasons to be bullish the currency beyond the next couple of days.
Hourly chart
SWFX sentiment becomes bullish
A portion of the bulls increased with a dip in Pound's price. Right now they take up 59% of the market (52% yesterday). On the other hand, the percentage of buy orders fell from 55% down to 39% compared to the Tuesday's data, suggesting the selling pressure will likely increase even more.
As for OANDA and SAXO Bank, there is no real difference between the amounts of bulls and bears. At the former broker 52% of open positions are long, although it is worth mentioning that the share of longs at SAXO Bank increased from 46 to 50%.
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.