- There are noticeably more commands to sell the Pound (63%) than to buy the currency (37%)
- The bulls (57%) are gradually losing their advantage over the bears
- GBP/USD heads towards the 2013 low at 1.48
- No important events are scheduled for today
Though the Pound lost against the US Dollar (-0.22%), it managed to outperform the safe havens. The Sterling appreciated 2.17% relative to the Franc and 0.99% relative to the Yen, despite the ever-decreasing probability of a rate hike.
It is expected that UK may soon follow the path of the Euro zone and slid into deflation in the coming months, thus forcing the Bank of England to postpone a hike of interest rates until 2016. The ongoing decline in oil prices will push Britain's cost of living to 0% in 2015, providing an opportunity of monetary policy normalization only in the beginning of next year, the EY Item Club is expected to report. Consumer inflation is likely to turn negative in the mid-2015, influenced by the persistent collapse in global commodity prices. One of the UK's most influential forecasters is also likely to upgrade its economic growth outlook for 2015 to 2.9%, up from 2.4% expected earlier, as low consumer prices are seen to have a reflationary impact on the nation's economy. The drop in global commodities will increase spending power of Britons, spurring further the UK's recovery.
Forecast made by the BoE in its November inflation report suggested a rate lift would possibly take place in the autumn 2015. However, last week inflation data showed consumer prices climbed at the slowest-ever pace in December, inching higher just 0.5%, forcing the BoE Governor Mark Carney to write a letter of explanation to the Chancellor. It is expected that Carney will be forced to continue explaining for many months to come, as inflation is unlikely to exceed the 1% level until 2016.
Beware of Wednesday
The week is expected to start slow, with only Euro zone high-impact data before Wednesday. Jan 21, on the other hand, is going to be marked by a plethora of potentially game-changing events, such as the UK labour market news, MPC votes, and US Building Permits, making it this week's riskiest part.
GBP/USD opens week beneath monthly S3
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".
As for the Sterling itself, Charles Purdy, CEO of Smart Currency Exchange, sees weakness in the nearest future, arguing that "the UK election will count against Sterling" in terms of "higher levels of uncertainty". According to the analyst, GBP/USD is likely to fall to 1.50 and then to 1.46 in one and three months, respectively. However, in a year he expects the exchange rate to recover to 1.48, after the BoE hikes the interest rates in the second half of 2015.
Daily chart
GBP/USD has once again broken the farthest monthly support at 1.5145, implying the bias is to the downside. Previously the demand at 1.50 did not let the Sterling to come closer to the 2013 low than 200 pips and initiated a correction. Eventually the bears are expected to gain the upper hand, though it is worth noticing the mixed technical indicators, suggesting the sell-off may take even more time to develop.
Hourly chart
Sterling popularity wanes
The bulls are gradually losing their advantage over the bears. The share of the former has declined to 57% over the weekend. As for the orders, there are noticeably more commands to sell the Pound (63%) than to buy the currency (37%), meaning the bearish pressure may soon intensify.
The gap between the bullish and bearish OANDA market participants narrowed to an even greater extent - from 16 to 10 percentage points in favour of the former. Meanwhile, SAXO Bank clients are not willing to alter their exposure towards the British Pound - 60% of them are long the UK currency (59% on Friday).