- The number of orders to acquire the Sterling declined from 58 to 55%
- 61% of all positions are now long (previously 63%)
- Average three-month forecast is 1.5391
- Immediate resistance is at 1.5185 (23.60% Fibo)
- Dips to be limited around 1.5030
- Upcoming events today: UK Manufacturing PMI, US Jobless Claims, US ISM Manufacturing PMI, US Construction Spending, US Natural Gas Storage
The Sterling sustained rather heavy losses against commodity currencies and other major peers. The Pound lost 0.96% against the Loonie, 0.95% against the Kiwi and 0.62% versus the Aussie. A lesser decline of 0.15% was recorded against the US Dollar, while the British currency also remained relatively unchanged against the Yen (-0.03%) and completely unchanged against the Swiss Franc. Nevertheless, the Sterling managed to appreciate against the European currency, adding 0.48%.
Economic growth in the UK stayed solid in the second quarter of 2015, despite a slight downward revision in the annual GDP. In a report, the UK's Office for National Statistics said GDP expanded at a seasonally adjusted rate of 0.7% in the three months through June 30, meeting forecasts and being unchanged from a preliminary estimate. The reading revealed a robust growth, compared with a 0.4% increase in the preceding quarter. On an annual basis, GDP was revised lower to 2.4% from the previous estimate of 2.6%. As for the main drivers of expansion, exports of goods took the leading position with a 2.6% rise, while construction output was up 1.4% and the services industry advanced 1.4% during the reported quarter. According to the ONS report, UK's GDP per head in the second quarter was 0.6% above its pre-crisis peak level recorded in early 2008.
Meanwhile, another figure by the ONS showed a notably healthier current account balance, with the deficit narrowing to 16.8 billion pounds in the second quarter, down from a revised deficit of 24 billion pounds a quarter before. It equals to some 3.6% of the total GDP, the lowest in around two years.
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.
UK Manufacturing PMI and US ISM Manufacturing PMI
The UK Manufacturing PMI released by both the Chartered Institute of Purchasing & Supply and the Markit Economics captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the Manufacturing PMI is an important indicator of business conditions and the overall economic condition in UK. According to the forecast, a weaker figure is expected today, although the change is insignificant, compared to the previous release. With the given data release being the only significant one concerning the Sterling, the remaining focus shifts to the US fundamentals, namely the ISM Manufacturing PMI. The US manufacturing sector is also expected to show no signs of improvement; thus, the exchange rate is likely to be influenced by secondary data or the magnitude of the Manufacturing PMI changes in the US and the UK.
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 remains under pressure
The Sterling struggled to appreciate against the US Dollar for another day, retesting the 23.60% Fibonacci retracement. The pair extended its decline for the fourth consecutive day, but remained rather far from the immediate support level. As no significant area was breached yesterday, the outlook remains bearish, despite other potential market movers being present. The 23.60% Fibo keeps providing resistance, while the Bollinger band is supporting the Pound from below, now bolstered by the weekly S1.
Daily chart
The Cable attempted to breach the resistance trend-line, but the 23.60% Fibo pushed the pair back down. However, the current bearish trend risks being broken today, as the GBP/USD keeps testing the trend-line for weaknesses, although chances of the breakout occurring are also low.
Hourly chart
Bulls prevailing over bears
Bulls retreated today, as 61% of all positions are now long (previously 63%). At the same time, the number of orders to acquire the Sterling also declined, from 58 to 55%.
The sentiment at SAXO Bank remains bullish, as 59% of their traders are long the Sterling. Bulls at OANDA also remain in the majority of the market, with 60% of their positions being long (previously 62%).
Spreads (avg, pip) / Trading volume / Volatility
Average three-month forecast is 1.5391
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 1.5391 on Jun 1, 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 intervals, selected by 16% of respondents each, followed in popularity by 1.46-1.48 (12% of respondents).
Following negative development of the pair during September 21-25 week, participants of our weekly Community Forecasts quiz decided to become much more bearish on the Cable, as currently only 45% of them support movement to the north in course of this week. The average prediction, in turn, is now located at 1.520 level.
On the bullish side, khalidamassi, one of the Dukascopy Community members, says that the Cable fell sharply last week to 1.51, before recovering to 1.52. He believes that it is a strong support, which is likely to hold this week. However, he warns that "the bullish scenario may be threatened by good US NFP numbers." On the bearish side, however, TRENDMASTER suggests that the "Cable remained in bearish market and at risk of further depreciation with strong downtrend formation on monthly/daily and 4-hourly time frame." Consequently, he believes that this week the currency pair will extend its downtrend.