- 57% of all positions are long
- There are significantly more commands to sell the Pound, namely 64%
- Average three-month forecast is 1.5488
- Immediate resistance is at 1.5530 (100-day SMA)
- Dips to be limited by 1.5514/04
- Upcoming events today: US Existing Home Sales, FOMC Member Lockhart Speech, UK Public Sector Net Borrowing
The Sterling showed mixed performance over Friday and the weekend, declining against most Asian currencies. The Pound dropped 0.25% versus the US Dollar, while losing from 0.27% to 0.41% against the Aussie, the Yen and the Kiwi. However, gains of 0.73% and 0.52% were recorded against the Euro and the Swissie, respectively, while the British currency remained relatively unchanged against the Loonie, adding only 0.07%.
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 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.
Markets to remain calm until Sep 23
Monday is a rather free day in terms of fundamental data. The only relevant data release is the US Existing Home Sales at 14:00 PM GMT, followed by a speech from FPMC Member Lockhart at 17:00 PM GMT.
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 refuses to move away too far from last week's high
As was anticipated, the Cable's decline was limited by the support cluster around 1.5516, despite initial signs of a further rally. The Sterling remains supported by the given cluster and should recover from the Friday's loss, in spite of having opened trade between the 55 and 100-day SMAs. The nearest resistance from here is the 38.20% Fibonacci retracement at 1.5568, while even further to the upside lies the Bollinger band at 1.5612.
Daily chart
Although the 38.20% Fibo managed to hold the exchange rate from falling on Friday morning, the day still ended with the Cable falling as low as 1.5520. 2014-Apr 2015 decline. Nevertheless, the bullish momentum appears to be intact, as no significant support was broken.
Hourly chart
Bulls prevailing over bears
Trader's sentiment remains bullish, as 57% of all positions are still long and 43% are short. At the same time, the gap between the purchase and the sell orders widened; there are significantly more commands to sell the Pound, namely 64%.
The sentiment at OANDA is neutral as well, where 52% of positions are long (54% yesterday). Bulls at SAXO Bank remain in a minority with 37%, it is even less pronounced than previously, when their share was 39%.
Spreads (avg, pip) / Trading volume / Volatility
Average three-month forecast is 1.5488
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 1.5488 on Dec 21, but this does not 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 (14% of respondents).