- The number of purchase orders declined from 61 to 47%
- Bulls and bears take up 59% and 41% of the market, respectively
- Average three-month forecast is 1.5468
- Immediate resistance is around 1.5350 (20 and 200-day SMAs and weekly S1)
- Dips to be limited by 1.5180
- Upcoming events today: US Core Personal Consumption Expenditures, US Final GDP, US Personal Consumption Expenditures Prices, US Markit Services PMI, US Revised UoM Consumer Sentiment
Thursday was a rather poor day for the Sterling, as it declined against most major peers. The largest decline of 1.30% was registered versus the Kiwi, followed by a 0.48% and 0.42% loss versus the Swiss Franc and the Euro, respectively. The Cable, however, edged up only 0.02%.
Mortgage lending rose in the UK in August as people continued to put their money into bricks and mortar amid low interest rates and uncertainty over the timing of the rate hike. Gross mortgage borrowing soared an annual 14% in the reported month to hit 12.2 billion pounds - the largest increase since 2008, while the monthly rise of two billion pounds was the biggest in five years. According to the BBA report, the number of mortgage approvals rose to 46,743 in August from 46,315 in July. This was the highest since February 2014, when it totalled 47,581. On an annual basis, the number of approvals in August was 23% higher, with re-mortgaging up 38% - the highest level in four years, while house purchases rose 16% in the given period. Meanwhile, bank lending to companies increased in August, but it continues to be subdued.
However, the boom in home loans may be fraught with danger as a recent survey revealed that more than a half of borrowers say they would struggle or fall behind with mortgage repayments if interest rates rise up from 0.5%. As the Building Societies' Association revealed in its report, there are nearly two million homeowners who have never experienced a rate rise and it could cause difficulties.
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 Final GDP and Markit Services PMI
The US Bureau of Economic analysis is to release the Final GDP figures today, however, as this is the final release, the impact is expected to be not as significant as the Advance release would have had. Although the data is expected to fall in line with expectations, a shift in either direction should cause the US Dollar behave accordingly. Another rather significant data release is the Services PMI, which captures business conditions in the services sector. As the services sector dominates a large part of total GDP, the services PMI is an important indicator of the overall economic condition in US. With the forecast standing at 55.60 (down from 56.10), there is a slight chance of the GDP showing a worse-than-expected figure as well.
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 risks falling to four-week low
Fed Yellen's rather hawkish statement helped the US currency to regain some ground, leaving the Cable relatively unchanged on Thursday, as the pair advanced only three pips. The Cable is likely to remain under pressure today, falling under the 1.52 psychological area. The support cluster around 1.5180 is the base case scenario target, with a possible drop as low 1.5130, namely the last level forming the given cluster. Technical studies, however, retain their bullish signals, suggesting the GBP/USD could rally above 1.53.
Daily chart
The Cable appears to have almost reached the bottom, after falling through all of the week. However, little room is left for downside volatility, as the 23.60% Fibo is likely to provide sufficient support to prevent the pair from edging lower.
Hourly chart
Bulls prevailing over bears
Bulls and bears remain unchanged since Thursday, taking up 59% and 41% of the market, respectively. The number of purchase orders, on the other hand, declined from 61 to 47%.
The sentiment at SAXO Bank remains reached a perfect equilibrium today. Bulls at OANDA remain in the majority of the market, with 60% of their positions being long.
Spreads (avg, pip) / Trading volume / Volatility
Average three-month forecast is 1.5468
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 1.5468 on Dec 25, but this does not fully reflect the structure of the votes. The most frequently chosen price intervals are quite far from the mean value, those are the 1.48-1.50 and 1.60-1.62, both selected by 16% of respondents, followed in popularity by 1.46-1.48, 1.56-1.58 and 1.58.1.60 (11% of respondents each).
This week traders' expectations changed insignificantly, with 64% of Dukascopy Community members being bullish. As a result, the advantage of bullish votes increased even more over the past five trading days. Market participants also see the pair higher by Friday of this week, with the mean forecast being placed at 1.556.
Jignesh remains long the Sterling for another week, as he believes the pair is bullish on a weak USD. However, "the pair is facing some resistance overhead in the form of a rising trend line which has yet to be broken", he added. On the bearish side, rokasltu, suggests that the Cable reached the 1.55 mark, but the outlook for the Sterling interest rate is unclear; therefore, he supposes the pair will gradually decline.