- The number of buy orders returned to its Monday's level of 36%
- 55% of all positions are long
- 17% of traders assume the British Pound will cost between 1.58 and 1.60 dollars in three months
- The nearest resistance lies at 1.5490, namely the monthly R1 and 100-day SMA
- Immediate support rests around 1.54 (55-day SMA and weekly PP)
- Upcoming events today: UK Public Sector Net Borrowing, US Crude Oil Inventories, FOMC Member Powell Speech, BoE Governor Carney Speech
The Pound declined against most major peers on Tuesday, with exception against the Kiwi and the Yen. The largest loss was detected against the Loonie (0.43%), followed by a 0.30% decline versus the Aussie and 0.29% against the Euro. However, the Sterling managed to gain 0.15% and 0.44% against the Japanese Yen and the New Zealand Dollar, respectively.
he BoE's Monetary Policy Committee voting member Ian McCafferty urged the central bank to raise interest rates now if it intends to keep further rate increases smooth and steady to minimise the disruption to consumers and businesses. McCafferty underlined that the BoE needs to avoid getting "behind the curve" when it comes to making its first interest rate hike since before the financial crisis..
Even though the British economy has been growing strongly for the last two years, the BoE signalled it is in no hurry to hike rates, as eight of the nine rate-setters have continued to vote to maintain rates at record low 0.5%. While markets currently price in an interest rate hike only around the end of 2016, a number of economists expect the central bank to move early next year. BoE Governor Mark Carney has said a decision on a rate hike will become clearer around the turn of the year. McCafferty, the only policy maker who has been voting for a rate increase from August through October this year, argued at the latest MPC meeting that "the likely prospective increase in domestic costs was sufficient to justify an immediate increase in Bank Rate.
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 Public Sector Net Borrowing
The only relevant data release on Wednesday is the UK Public Sector Net Borrowing. It is the difference in value between spending and income for public corporations, the central government, and local governments during the previous month. A positive figure indicates a budget deficit, whereas the negative one – a surplus. According to the forecast, the Borrowing is expected to fall from 11.305£ billion to 9.10£ billion, implying that the British currency will strengthen on improvements in the budget. However, the BoE's Governor is also scheduled to speak later today, whose speech might provide some insight on the future monetary policy. The Sterling crosses are usually subject to volatility to during speech, a lot depends on his statement.
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 to test 1.55 once more
Yet again the Cable's volatility to the upside was limited by the 1.55 major level. Moreover, the pair was pushed slightly back, suffering a 21-pip loss, amid mixed US fundamental data results. Nevertheless, the GBP/USD keeps closing trade higher each day, with another rebound expected today, whereas technical indicators are bolstering this possibility with their bullish signs. The cluster around the 1.55 psychological level keeps providing resistance; a breakout today is unlikely to occur.
Daily chart
The GBP/USD pair extended its decline, thus, continuing to consolidate between the 1.54 and 1.55 levels. The 1.54 major area is now bolstered by the 200-hour SMA, providing a rather strong support, suggesting the Cable is to rebound today.
Hourly chart
Bulls remain in the majority
More traders now have a positive outlook towards the Sterling, as 55% of all positions are long (previously 53%). Meanwhile, the number of buy orders returned to its Monday's level of 36%.
The sentiment of other market participants shifted to the bearish side. OANDA now has 56% of traders holding short positions (previously 53%). Meanwhile, 64% of traders at SAXO Group retain a negative outlook towards the Cable, compared to 65% on Tuesday.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders assume the British Pound will cost between 1.58 and 1.60 dollars in three months
According to the survey, conducted between Sep 21 and Oct 21, the Sterling is expected to cost 1.5493 dollars in three months. The 1.58-1.60 price interval received the largest number of votes, namely 17%, followed in popularity by three other intervals; 13% of voters believe the Pound will be in the 1.50-1.52 range or the 1.62-1.64, while the same percentage also suggests the Sterling is to cost less than 1.46 dollars after three months. Nonetheless, the overall majority (52%) believes that the Pound will fall below the 1.56 major level by January 21.
As predicted by traders, the GBP/USD may close around the 1.538 level by Friday. However, traders are equally divided between the bulls and bears this week.
Last week the gap between the bulls and the bears was not wide, but right now the long and short position ration is equal to one. On the bullish side of the barricade Nuki1981 suggests that the "British Pound is gaining strength due to disappointing data from the US, following the trend of the EUR." Meanwhile, on the bearish side Daytrader21 believes that with the recent inflation figure tumbling and the future rates pricing in the first rate hike only later in 2016, we can expect GBP/USD to be kept under pressure. "First major supports came in the 1.4900-1.4800 area," he mentioned.