- The portion of sell orders slumped from 74 to 52%
- Bullish traders' sentiment returned to its Tuesday's level of 64%
- The nearest resistance is located at 1.3267
- Support is at 1.3033
- 64% of traders reckon GBP/USD will be at 1.40 or lower in three months
- Upcoming events: MPC Official Bank Rate Votes, BoE Official Bank Rate, UK Asset Purchase Facility, US PPI, US Jobless Claims, US Core PPI
According to the Mark Carney, criticism towards the Bank of England in the run-up to the EU referendum had been "extraordinary in all senses of the word". For the first time in more than seven years, economists are finally expecting some action from the Bank of England towards the UK interest rates during its first meeting after the Brexit referendum on Thursday. It is expected, that in order to calm financial markets and spur confidence after the Britons voted to leave the European Union, the central bank is widely seen to reduce its key interest rate to 0.25% from a current record low of 0.5%, where it has stood since March 2009. Currently, the BOE, is trying to find a balance of addressing the potential economic impact of a Brexit, without seen as siding with either political position. Philip Shaw, chief economist at Investec adds "Carney alluded to a range of available policy options, some of which were not used previously. We are at pains to identify exactly what the Governor might have in mind here. Dropping cash from helicopters (or a practical equivalent), has been ruled out by several central banks and we do not see this as a realistic possibility".
Meanwhile, the BOE rate decision and minutes are going to be announced on Thursday.
BoE's Interest Rate Decision, US PPI and Initial Jobless Claims
Today the BoE is to announce its interest rate decision. The decision is usually priced in the market, so usually the Monetary Policy Summary is more important, as it gives insight concerning the future. Short-term interest rates are the paramount factor in currency valuation – traders look at most other indicators merely to predict how rates will change in the future. From the US, however, the PPI figure is due. It measures the average changes in prices in primary markets of the US by producers of commodities in all states of processing. Changes in the PPI are widely followed as an indicator of commodity inflation. Furthermore, the US Jobless Claims are to be released later today, which measure the number of people filing first-time claims for state unemployment insurance. In other words, it provides a measure of strength in the labor market. A larger than expected number indicates weakness in this market which influences the strength and direction of the US economy.
GBP/USD waits patiently for the BoE's decision
The British Pound weakened against the US Dollar on Wednesday, ultimately closing with a 99-pip loss over the day, but without the immediate support area being reached. Today risks are still skewed to the downside, as the BoE is expected to cut its interest rate by half, which is considered to be negative for the UK currency. As a result, the Cable could fall back towards the 1.2855 level, where the one-year support line is located. Technical indicators are in favour of this outcome, but volatility could even stretch out further, namely towards the 1.26 major level. On the other hand, a surprise of leaving the rates unchanged would only prolong the Sterling's bullish momentum.
Daily chart
On the hourly chart the GBP/USD currency pair was seen rebounding from the 200-hour SMA at the beginning of the day, regaining the bullish momentum. However, the given SMA is unlikely to provide sufficient support in case bears take over the market.
Hourly chart
Bulls remain in control
Bullish traders' sentiment returned to its Tuesday's level of 64%, while the portion of sell orders slumped from 74 to 52%.
Compared to Wednesday, there are slightly less bulls at OANDA - they take up 52% of the positions open with the Canada-based broker. Sentiment at Saxo Bank grew stronger, as here the number of bulls exceeds the number of bears by 8 percentage points.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.40 in three months
More than half of traders (64%) believe the British currency is to cost 1.40 or less dollars after a three-month period. The most popular price intervals was selected by only 14% of the voters, namely the 1.28-1.30 one, while the second most popular choice implies that the Sterling is to cost either between 1.24 and 1.26, between 1.36 and 1.38, or between 1.40 and 1.42, or even between 1.42 and 1.44 dollars in three months, all four chosen by 10% of the surveyed. At the same time, the mean forecast for Oct 14 is 1.3662.