- Percentage of commands to sell the Sterling went up from 54 to 64%, indicating growing supply
- SWFX market participants remain equally divided between the bulls and bears
- 17% of traders still see the pair between 1.48 and 1.50 in three months
- Upcoming events: UK CPI on Tuesday
The Pound performed worse than most of its counterparts on Friday, as some of the releases surprised to the downside. The currency lost 0.43% against the Loonie and 0.36% against the Kiwi.
The UK construction sector's activity slowed at the end of the last year, due to less maintenance and repair work as well as slower house building. Total construction output sank by 2.1% compared with the previous quarter, a bigger drop than the estimated earlier 1.8% fall, the Office for National Statistics reported. The volume of new home construction, the main driver behind higher construction output earlier in the year, decreased by 0.2% after jumping 6.1% in the September quarter of 2014, its first drop since the beginning of 2013. For December alone, total construction output ticked up by just 0.4% after falling by 1.8% in November, considerably less than an expected 2.8% month-on-month growth. For 2014 as a whole, output increased 7.4%, the fastest growth since 2010, but momentum is fading and output in December alone was only 5.5% higher compared with the same period last year.
However, the ONS said that the downward revision of construction output, which makes up 6% of the British economy, should not have a real, one decimal, effect on the first estimate of the UK GDP data, which so far stands at 0.5%. The second estimate, which will include expenditure data, is due to be published later in February. Low inflation and stronger consumer spending are expected to add more strength to the second estimate.
Michael Hewson, a senior market analyst at CMC Markets, warns that "we could see a little bit of weakness in the UK economy". Accordingly, there is unlikely to be a rate hike before the beginning of 2016.
Quiet fundamental background
There are no releases on the UK economy scheduled today, and there is a banking holiday in the United States. Volatility of GBP/USD should thus be decreased. On the other hand, tomorrow in the morning the Office for National Statistics is expected to publish slower increase (0.3%) in the price level than a month earlier (0.5%).
GBP/USD retains bullish momentum
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
Regardless of the unfavourable technical indicators, GBP/USD keeps moving north. Immediate resistance is at 1.5447, represented by the monthly R1 level, but the main nearby supply zone is between 1.56 and 1.55, considering behaviour of the pair in November and December. However, if the latter area is broken, the rally will be in a good position to extend to 1.5850, where the monthly R2 merges with the minimum seen in Q4 of 2013.
Hourly chart
Perfectly neutral sentiment
SWFX market participants remain equally divided between the bulls and bears. Meanwhile, there is a growing percentage of commands to sell the Sterling. Over the weekend their share went up from 54 to 64%, indicating growing supply.
The sentiment among the SAXO Bank clients is neutral as well, being that only 53% of open positions are long. OANDA traders have a bullish outlook with respect to the Cable, as 59% of market participants are to profit from Sterling's appreciation.