- Share of buy orders went from 46 up to 58%
- The gap between the bullish (46%) and bearish (54%) market participants keeps growing
- Traders are moderately bearish towards GBP/USD in the long term
- Upcoming events: UK Trade Balance, US Non-Farm Employment Change, Unemployment Rate, Average Hourly Earnings
The Pound preserved the bullish momentum and ended yet another day in green. Although there were no explicit Sterling-positive events except for the appreciating real estate, the currency was the third best-performer, getting 1.19 and 0.96% more expensive relative to the Japanese Yen and the US Dollar, respectively.
The Bank of England decided to keep its key interest rate and QE programme unchanged. The interest rate will be maintained at a record low of 0.5%, while the QE programme will remain at £375 billion. Given a dramatic fall of inflation to 0.5% in December, amid a slump in oil prices, few analysts expect the central bank to consider policy normalization before the autumn. BOE forecasts indicate it could take until late 2017 to bring inflation back to the BoE's targeted level of 2%, despite healthy growth outlook and a further drop in unemployment rate. The members responsible for the interest rate-setting are concerned over a deflation risk, as policy makers saw more risk to the near term inflation on the downside, saying cheaper oil and lower import prices may persist for longer than had been expected. Nevertheless, sliding oil prices have also boosted consumer spending, as well as lowered production costs. Wages were reported to have grown slightly faster, as the economy is showing signs of improvement. The BoE has signalled it remains unwilling to raise rates until there was a sustained improvement in workers' pay.
Meanwhile, the house prices in the UK rose much more than anticipated in January. The HPI was expected to fall from 1.1% to 0.1%, but instead it gained 0.9 percentage point up to 2% in the last month. With the HPI hike concerns over the wellbeing of UK's housing market were eased after a slowdown since May 2014.
Non-Farm Payrolls at 13:30 GMT
The NFP report at 13:30 GMT is the main risk event today for all the major currency pairs, including GBP/USD. According to the consensus forecast, the Bureau of Labor Statistics is to show slowing monthly creation of workplaces from 252 to 236K. The volatility will also be elevated because of the US Unemployment Rate and Average Hourly Earnings.
GBP/USD violates a major down-trend
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 1.46 by the end of March. 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
Neither the four-week down-trend at 1.52 nor the seven-month down-trend at 1.53 were able to halt the Cable. Considering that these major resistances are no longer topical, the Sterling has a lot of room to appreciate. The closest significant supply area is at 1.5450/00, but the rally has the means to extend further north. Additional targets are the 100-day SMA at 1.5680 and the 2013 Q4 low at 1.5850.
Hourly chart
Neutral sentiment
While the gap between the bullish (46%) and bearish (54%) market participants keeps growing, more SWFX traders in the radius of 100 pips from the spot are willing to purchase the Pound. Their share went up from 46 to 58%.
The number of long positions at SAXO Bank declined as well, but still constitutes a majority, namely 54% of the market. OANDA clients also appear to be largely undecided with respect to the Sterling, as 52% of open positions are long and 48% are short.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders see 1.50/1.48 in three months
At the same time, the near-term outlook, as shown by the survey among the FX Community members, is bullish. Despite the negative developments in the pair during the end of the January 26-30 week, the traders have become more positive towards the Cable, as 56% of all votes are for appreciation. The average prediction is now located at the 1.509 level.
According to rokasltu, the "rate seems to have found a good support just below the 1.50 level", adding that "there is potential for the rate to add around 100 pips". On the other hand, Jignesh is less optimistic regarding the Pound, saying that "the pair will continue to consolidate in this area [1.50] for the week towards the downside".