- A majority (58%) of the SWFX traders holds Pound-long positions
- The share of sell orders plunged from 66 to 53%
- GBP/USD heads towards the 2013 low at 1.48
- Surveys: Sterling to decline in the long term, but is bullish in the short run
- Upcoming events: FOMC Statement, US Crude Oil Inventories
The Pound completely disregarded the negative inflow of data regarding the economic activity and appreciated versus all its major peer except for the Euro. GBP/USD went up 0.79%, while GBP/CHF advanced 0.76.
While the UK economy recorded the fastest annual growth rate since the financial crisis of 2007, the economic recovery lost some steam in the final quarter of 2014. According to the Office for National Statistics, the UK economic output slowed to 0.5% in the three months through December, down from 0.7% in the previous quarter and against the City's forecast of a 0.6% growth rate. The final quarter's GDP was affected by weaker production of oil and gas in the North Sea, which translated into an unexpected fall in overall industrial output. GDP advanced 2.7% compared with the fourth quarter of 2013, while economic output in 2014 as a whole was up 2.6% on 2013. Services sector continues to be the main catalyst of headline GDP growth, contributing 0.62 percentage points of growth on the quarter, whereas construction's decline deducted 0.11 percentage points of the total. The International Monetary Fund expects the UK economy to grow 2.7% this year, which would be the fastest in the Group of Seven after the US.
Prime Minister David Cameron is relying on the recovery and surging employment to help him retain power after the general election, which take place on May 7, with polls suggesting neither his Conservative Party nor the Labour opposition is set for a parliamentary majority. The economy is now 7.8% bigger than it was in the second quarter of 2010, when Britons went to polls last time.
FOMC Statement
Most market participants are likely to look for clues regarding the possibility of the rate hike this year in today's release of the FOMC statement, making this the most important event of Jan 28. However, for now the Committee is not expected to introduce any changes into the wording of the document, and a chance of high levels of turbulence around 19:00 GMT is therefore low.
GBP/USD headed towards 1.53
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
Not only did GBP/USD break the weekly PP, it also jumped over a cluster of resistances at 1.5168/45 (weekly R1, monthly S3 and 20-day SMA). Accordingly, the bulls may well push the price even higher, up to 1.53, where the seven-month down-trend coincides with the monthly S2 level. There the current bullish correction should come to a halt, otherwise the medium-term bearish outlook for the Sterling will no longer be valid.
Hourly chart
SWFX sentiment stable despite the rally
Just like yesterday, a majority (58%) of the SWFX traders holds Pound-long positions. On the other hand, there are now significantly less commands to sell the Sterling against the US Dollar than 24 hours ago, their share plunged from 66 to 53%.
The sentiment at OANDA is largely unchanged as well, but neutral, as a half of open positions are long. At the same time, SAXO Bank clients are becoming less and less optimistic regarding the bullishness of the British Pound, as the share of longs declined further, this time from 62 to 57%.
Spreads (avg, pip) / Trading volume / Volatility
GBP/USD to be at 1.505 in three months
The sentiment among the FX Community members towards the Cable changed insignificantly during past week. The median expectation for Friday is around the 1.505 level. The traders also do not seem to expect the pair to follow a strong trend, being that as many as 47% of respondents see GBP/USD ending the week between 1.510 and 1.495.
One of the Pound-bullish FX Community members, rokasltu, believes GBP/USD is facing a tough support at 1.50, meaning the risks are skewed to the upside. Meanwhile, khalidamassi sees a major support a little lower, at 1.4812, suggesting there is still room for the price to fall.