- The distribution between the buy and sell orders is 44 to 56%
- The bulls are in a majority with 57%
- GBP/USD heads towards the 2013 low at 1.48
- Surveys: Sterling to decline in the near and long term
- Upcoming events: ECB Press Conference, MPC Miles and Fisher Speeches, UK Public Sector Borrowing, Industrial Orders
Yesterday's news had offsetting effects on the British Pound, which remained unchanged relative to the US Dollar. While the MPC vote increased the pressure on the currency, the labour market data did not allow the bears to dominate the market.
Two policy makers of the rate-setting Monetary Policy Committee, who insisted on the need to raise interest rates in the near term, changed their mind and joined those, who advocated for keeping rates unchanged, which raises speculation the Bank of England will refrain from raising interest rates until next year. Thus, nine-member panel unanimously voted to maintain the BoE's interest rate at 0.5% and the size of its asset portfolio at 375 billion pounds. Martin Weale and Ian McCafferty, who repeatedly voted for a rate increase each month between August and December, dropped their campaign for higher borrowing costs. A precipitous fall in oil prices caused the UK consumer prices to drop to the lowest level in 14 years of 0.5%, far below the BoE's inflation goal of 2%. The unexpected decline in inflation put deflation threat on the horizon.
Separate data showed the unemployment rate unexpectedly dropped to 5.8%, with the number of people seeking jobless benefit declining for the 26th straight month. The number of people claiming unemployment benefit fell by 29,700 people, slightly above last month's figure. This resulted in a claimant count rate of 2.6%, in line with market expectations. The unemployment rate in Britain has been falling sharply over the last two years, from 8.4% in January 2012 down to 6.0% in the quarter to October last year. In its November Inflation Report forecasts, the Bank of England revised its outlook for the jobless rate down to 5.7% in the final quarter of 2014.
No high-impact data from UK; focus on the ECB
A lack of important news releases concerning the United Kingdom is deceiving. The ECB Press Conference, coupled with the US Unemployment Claims, may well have a noticeable impact on GBP/USD. The volatility in the market may already start rising around 12:30 pm GMT.
GBP/USD weathers selling pressure
Simon Smith, Chief Economist at FXPro, advises not overestimate 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
Though the fundamental background was negative for the Pound, the currency did not wander away from the resistance at 1.5160/45 (weekly PP and monthly S3). Despite the demonstrated resilience, the outlook for GBP/USD is bearish, mainly because of the major falling trend-line at 1.5450. The immediate support is at 1.5050 (weekly S1), but there is a high chance of the pair sliding down to the 2013 low in the coming weeks.
Hourly chart
Longs - 57% | shorts - 43%
For the time being the changes in the SWFX market sentiment are insignificant, and the bulls are in a majority with 57%. At the same time, the bulls at OANDA keep losing positions - their current share is 54% (56% yesterday), and the bulls at SAXO Bank grew in numbers, as they currently take up 61% of the market (58% yesterday).
The distribution between the buy and sell orders is 44 to 56%, meaning it is easier for the Sterling to fall than to rise, though the difference is minimal.
Spreads (avg, pip) / Trading volume / Volatility
Long-term forecasts turn bearish
A near-term survey that asks FX Community members regarding the week-end prospects reveals that there are more people (57%) expecting the Sterling to lose value not only in the long run, but also this week as well. Nevertheless, the mean prediction is not far from the spot price, namely at 1.5160, even though 26% participants voted for the 1.515/1.502 range.
Among the potentially bullish factors, RacerX noted that the "upcoming employment reports point to modest gains in both jobs and wages", adding also that "there is a possibility of a soar in light of news from Switzerland and the Eurozone". On the other hand, geula4x believes that "GBP/USD still looks quite bearish", though he did highlight a support level at 1.50 and a resistance level at 1.5270.