- Share of buy orders surged from 50 to 61%
- Sentiment improved, but remains neutral—55% of positions are long
- Downward-sloping channel is not letting the pair recover above 1.5310
- Target is the Oct 13 low at 1.52
- 63% of traders reckon GBP/USD will be at 1.54 or higher in three months
- Upcoming events today: FOMC statement, US goods trade balance (Sep), crude oil inventories
The Pound continues to balance between the gains and losses versus its major counterparts, even though the fundamentals were not at all favourable yesterday for the UK currency. The Sterling appreciated 0.54 and 0.45% relatively to the Loonie and Aussie respectively, while it lost 0.86% of the value in terms of Japanese yen.
The British economy expanded less than expected in the three months to September after the largest drop in construction in the last three years and weaker manufacturing output, according to the preliminary data by the Office of National Statistics. The UK's gross domestic product stepped up by 0.5% in the third quarter, missing analysts' forecasts of a 0.6% increase. In the second quarter of the current year, GDP grew by 0.7%. Measured on an annual basis, the UK's economic growth expanded by 2.3%, which is the lowest growth rate since July-September of 2013.
The ONS reported that output increased in the three major industrial sectors of the economy. The services sector that represents the economy's biggest share and is therefore the main driver for growth, climbed up by 0.7% quarter-on-quarter, demonstrating its strongest performance since the final quarter of 2014. As to the other two sectors, namely production and agriculture, these revealed an increase of 0.3% and 0.5%, respectively. The domestic construction industry, on the other hand, tumbled by 2.2% and was the main contributor for the decline in UK's GDP. Manufacturing output moved down by 0.3% quarter-on-quarter and has contracted for three consecutive quarters.
FOMC statement to dominate trading
Today's releases and surprises before 6 pm GMT are unlikely to have any material impact on the markets. All the attention is to be directed at the wording in the FOMC statement. The key question remains whether to expect a rate hike this year or only somewhere in 2016. According to the CME's FedWatch tool that is based on the the 30-day fed funds futures, there is 65% chance that the rate is going to stay unchanged until the end of this year.
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 at the beginning 2016."
GBP/USD's decline delayed by 1.51
So far this week the bears have been unsuccessful in breaching the monthly PP, but the ‘sell' signals provided by the indicators convince us this is going to happen eventually. In such a case the next major support to test the bearish momentum of the Cable will be the September low at 1.51. In the meantime, the immediate resistance is relatively close to the spot—the 200-day SMA is at 1.5330, leaving very little room for intraday rallies. If broken, additional resistance will be at 1.5390, represented by the 55-day SMA.
Daily chart
In the lower timeframe the situation remains bearish as well. Apparently, GBP/USD has formed a downward-sloping channel that should not let the pair recover above 1.5310 in the nearest future, while the target is the Oct 13 low at 1.52.
Hourly chart
Sentiment stays neutral before the big event
The sentiment in the market improved, but remains neutral—55% of positions are long (53% yesterday). At the same time, the share of buy orders surged from 50 to 61%, implying growing demand before the FOMC statement later today.
The distribution between the bulls and bears at OANDA was not subject to change. Just like yesterday, 49% of open positions are long and 51% are short. On the other hand, the proportion of bulls at SAXO Bank increased, but they are still outnumbered. At the moment 44% of SAXO Bank clients are long and 56% are short the Sterling.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD above 1.54 in three months
There appears to be no clear view in the market how the Cable is going to perform during the next three months, but 63% of survey participants reckon that GBP/USD will be at 1.54 or higher. Judging by the results of the poll conducted in October, 18% of traders expect the Sterling to cost between 1.60 and 1.58 US dollars by the end of January. At the same time, 15% of the estimates are that the UK currency will be worth only 1.46 or even less US dollars. The third most popular choice (13%) was that GBP/USD will rise to somewhere between 1.64 and 1.62. The average forecast for Jan 28 is 1.553.
This week's Community target is 1.5360
There are slightly more bulls among the Community members than there are bears, and the average forecast for this Friday is 1.5360. According to the latest survey, a little more than 56% of respondents expect the Sterling to appreciate this week. Community member TRENDMASTER reckons that "GBP/USD may be affected positively by dovish outcome from FED FOMC meeting this week and will continue to strengthen in the near term."
On the other hand, nuonrg expects bearish development and states that "the four-hour triple top held the pair capped and price dropped lower", adding that he sees "the down channel continuing to shape the pair with bottom around 1.497 level if it overreacts to the downside".