- The ratio between the bulls (57%) and bears (43%) stays the same
- The percentage of traders planning to sell the British Pound substantially increased
- GBP/USD heads towards the 2013 low at 1.48
- Surveys: Sterling to decline in the near and long term
- Upcoming events: UK Retail Sales, US Flash Manufacturing PMI, Existing Home Sales
The British Pound turned out to be the third worst performer on Thursday behind the Euro and the Franc. The largest drop was recorded against the US Dollar, even though the US Unemployment Claims surprised to the downside.
British government borrowing unexpectedly increased in December due to hefty contribution to the European Union budget as well as a rise in central government spending. UK's public borrowing rose to 13.1 billion pounds in December, up from 12.4 billion pounds in the preceding months and against to the City's expectations of 9.2 billion pounds. The UK's government was obliged to pay 2.9 billion pounds to the European Commission in December. While central government receipts rose 2.3% or 1.1 billion pounds, central government spending increased 6.2% or by 3.5 billion pounds largely due to a rise in capital transfers within the public sector. The Office for National Statistics said that stamp duties, corporation tax and VAT receipts rose, though income tax receipts were weaker than expected. Reduction of deficit has been one of the main priorities of UK's Conservative-led coalition since it assumed power in 2010, and is one of the main issues of the Finance Minister George Osborne's political campaign ahead of May's national election.
Separately, UK's total industrial orders fell in January, as the nation's economy continued to lose some steam. The factories; total orders balance dropped to +4%, compared with +5% a month earlier, while on a quarterly basis, orders jumped to +20%, the Confederation of British Industries said. The survey of 467 companies also revealed that employment continued to rise in the sector.
Don't miss the Retail Sales at 9:30 GMT
Today the Office for National Statistics is scheduled to give an insight into the main element of economic activity, namely the level of consumer spending. According to the market consensus, the retail sales are expected to decline as much as -0.6% after a 1.6% growth recorded a month before.
GBP/USD makes another step towards the 2013 low
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
The Euro keeps dragging the Sterling lower, which has fallen through the weekly S1 and to the S2 level. Now there is a good chance for a bullish correction, though it is likely to be capped at 1.5050. Next week the Cable is expected to resume the sell-off, with the medium-term target at 1.48, but the support at 1.4900/1.4850 may delay the arrival of the pair at the 2013 low. The technical indicators are largely mixed at the moment.
Hourly chart
More than 80% traders willing to sell
The ratio between the bulls (57%) and bears (43%) stayed the same, despite a precipitous decline. On the other hand, the percentage of traders planning to sell the British Pound substantially increased, namely from 56 to 81%.
OANDA also reports relative stability in the distribution between the bulls (55%) and bears (45%). At the same time, the percentage of longs at SAXO Bank keeps growing, it has already reached 64%.
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.