- There is no longer a significant difference between the buy (53%) and sell orders (47%)
- There are more longs (56%) than shorts (44%)
- Immediate resistance is at 1.5674 (monthly R1)
- Dips to be limited by 1.5527/04
- Average three-month forecast is 1.5484
- Upcoming events: BOE Quarterly Bulletin, MPC Member Haldane Speech, US CB Leading Index (Aug)
The Pound showed mixed performance yesterday. While the Sterling outperformed commodity currencies and the Greenback, it depreciated 0.52-0.63% against its European counterparts.
British retail sales, which account for 5.6% of the UK economy, rose in August, driven by sales of clothing, the Office for National Statistics reported. Retail sales volumes edged up 0.2% on the month to show an annual growth of 3.7%. Economists had expected retail sales to climb 0.2% and be up 3.8% compared with August last year. Clothing and footwear jumped 2.3% in August from July, the ONS said. The rise helped to offset drops at department stores and household-goods retailers. Food sales fell 0.9%. Core retail sales, which exclude auto fuel, increased a mere 0.1%. According to the Confederation of British Industries, retail sales picked up pace in August. The survey showed sales were supported by clothing and grocers' sales, following two months of stagnation, adding that sales volumes were expected to increase further in September.
Benign inflation and the strongest wage growth in more than six years put money in the pockets of consumers and helping them support the UK economy. Bank of England Governor Mark Carney told lawmakers that interest rates may need to rise from a record low in the new year if the economy continues to improve. Economists are still generally optimistic about the economy, as they forecast households are likely to feel wealthier and increase spending throughout the second half of the year.
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.
Markets to remain calm until Sep 23
Friday is a light day in terms of fundamentals, and no important releases are expected until next Wednesday. Still, the volatility may show increased levels as a result of corrections following yesterday's market moves.
GBP/USD on path to August high
Yesterday the Cable broke through the 61.8% Fibonacci retracement of the drop observed during the last week of August. This implies continuation of the current recovery. The immediate resistance is at 1.5674 (monthly R1), followed by 1.5818, the level where the late August sell-off began. Further to the north is the June high at 1.5930. However, during the next few days we may expect a correction, which is likely to be limited by 1.5527/04.
Daily chart
In the hourly chart GBP/USD has already gained a foothold above the 38.2% retracement of the July 2014-Apr 2015 decline. This further confirms that the UK currency is bullish and should keep advancing.
Hourly chart
Sentiment from neutral to negative
Although there are more longs (56%) than shorts (44%), the SWFX traders' sentiment borders on being neutral. Meanwhile, there is no longer a significant difference between the buy (53%) and sell orders (47%) after 20 percentage points recorded yesterday, meaning neither buying nor selling pressures prevail.
The sentiment at OANDA is neutral as well, where 54% of positions are long (51% yesterday). Bulls at SAXO Bank remain in a minority with 39%, although it is less pronounced than 24 hours ago, when their share was 35%.
Spreads (avg, pip) / Trading volume / Volatility
Average three-month forecast is 1.5484
Judging by the results of the poll among Dukascopy website visitors, traders do not seem to expect a lot of change in the Sterling-Dollar exchange rate during the next three months. The average forecast for GBP/USD is to trade at 1.5484 on Dec 17, but this does fully reflect the structure of the votes. The most frequently chosen price interval is quite far from the mean value, it is 1.50-1.48 (16% of respondents), followed in popularity by 1.62-1.60 (15% of respondents).
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.