- The gap between the buy (45%) and sell (55%) orders remains insignificant
- Long positions fell to 56%
- GBP/USD heads towards the 2013 low at 1.48
- Upcoming events: BoE Governor Speech, US Retail Sales, Import Prices
The British Pound turned out to be surprisingly resilient to the yesterday's events. The currency may have underperformed the Yen (-0.43%), but at the same time managed to gain relative to the kiwi (+0.51%) and relative to the Euro (+0.44%).
Consumer inflation in the UK fell more than expected in December, forcing the Bank of England Governor Mark Carney to write an official letter to the Chancellor George Osborne, explaining why consumer prices have been rising to slow recently. The last letter to the chancellor, which the central bank is legally obliged to write in case inflation strays more than 1 percentage point in either direction from the official goal, was written by then Governor Mervyn King in February 2012, when price increases were running above 3%. No letter has ever been triggered by inflation falling below the threshold since the BoE became independent in 1997. The UK's inflation rate dropped to 0.5% in December on an annual basis, the lowest level in 14 years, the Office for National Statistics reported. Economists believed that further declines seem likely, making the scenario playing out in the Eurozone, where deflation has become a headache for policy makers, possible for the UK's economy as well. Meanwhile, the core CPI was running at 1.3% in December, up from 1.2% in the preceding month.
Separately, UK house prices continued to fall, with house price inflation dropping to 10% in November, compared with 10.4% in the preceding month, the ONS said. Also, the two UK's largest mortgage providers, Rightmove and Nationwide, reported a deceleration of prices between November and December.
Focus shifts to the US data
Since there is a lack of releases in the United Kingdom, it is better to focus on the US data today, such as the Retail Sales figure that is expected to show a substantially slower growth in the sector of only 0.2% after 0.7% in November.
GBP/USD lacks momentum
Simon Smith, Chief Economist at FXPro, advises not overestiment bullish potential of the US Dollar in 2015. According to him, "we will see Dollar strength through the year, but it's going to be a very difficult year in terms of trends".
Daily chart
The monthly S3 at 1.5145 continues to underpin the Cable that in turn keeps trading sideways. Still, the bearish risks prevail, and a sell-off from the down-trend at 1.56 is likely to extend through the immediate support. This should lead to a re-test of the demand at 1.50 (weekly S1), followed by a decline down to 1.48, namely the 2013 low. In the meantime, the nearest significant resistance is standing at 1.5315, formed by the weekly R1 and monthly S2.
Hourly chart
Bullish sentiment weakens
As noted yesterday, the Sterling becomes less and less popular among the market participants. During the last five days the percentage of long positions in the SWFX market has gradually fallen from 63 to 56%. Similarly, OANDA and SAXO Bank clients are also reducing their exposure towards the Pound. Their shares of long positions are now at 52 and 58%, respectively.
Meanwhile, the gap between the buy (45%) and sell (55%) orders remains insignificant, meaning the buying and selling pressures are likely to be equally strong in the nearest future.
Spreads (avg, pip) / Trading volume / Volatility
GBP/USD expected to rise by mid-April; FX Community undecided
As for the weekly forecast of the FX Community members, the largest part (23%) of participants expects the Sterling to trade between 1.53 and 1.52 by Friday. The second most popular answer was 1.52/1.51 (20.5%).
Some of the bulls, as rokasltu, argued that a confirmation of the support at 1.50 is likely to turn out positive for the Sterling. Meanwhile, geula4x sees a major resistance level at 1.55, but also notes presence of a demand area near the round number of 1.50.