- Percentage of commands to buy the Sterling increased from 45% to 52%
- Market sentiment among SWFX participants remains in equilibrium between the bulls and bears
- 18% of traders see the pair between 1.54 and 1.56 in three months
- Upcoming events: US Markit Manufacturing PMI
Yesterday, the Sterling appreciated against most of the major currencies. The Pound gained 0.63% against the Swiss Franc and 0.22% versus the New Zealand Dollar, while declined 0.14% versus the Greenback.
Activity in the British manufacturing sector rose to the highest level in February, as both overseas and domestic orders increased, suggesting a brighter outlook for the coming months. The Confederation of British Industry survey's total order book balance advanced to +10 in February up from +4 in the preceding month, overshooting expectations of +6. CBI's index measuring expected volume of output for the next three months soared to +25, the highest level since September and compared with +13 in January. A reading above 0.0 indicates increasing order volume is expected, below points expectations are for lower volume. Yet, a lacklustre demand from the Euro zone remained a headwind for British manufacturers. However, that might change, if quantitative easing by the ECB provides the desired effect of spurring demand in the currency bloc.
The data raised hopes that Britain's economic recovery is regaining steam following a slight deceleration in the final quarter of 2014. While a sharp decline in oil prices boosted activity in the manufacturing sector by lowering operating costs, North Sea producers are clearly being hurt. The latest data showed the UK's industrial output slowed further at the end of last year. Figures, however, were offset by a better-than-expected performance in manufacturing.
Bank of England's Governor, Mark Carney, promised, that the UK would hit the Central Bank's 2% target within two years time, which is sooner than previously forecast. He also mentioned that current period of falling prices was temporary and fundamentally distinct phenomenon from deflation.
Fundamental background
So far the UK fundamentals have a negative impact on GBP/USD, as the retail sales came out worse than expected, declining 0.3% after a 0.2% increase in December. The volatility has the potential to rise even further, as the market expects the US Markit Manufacturing PMI.
GBP/USD likely to rise
Mark Carney, Bank of England Governor, pre-warned consumers that a negative inflation rate will be temporary and the UK will not experience deflation. "Enjoy it while it lasts" – Mark Carney said last week.
The Sterling has been moving upwards against the US Dollar for almost a month now, with minor setbacks on the way. The pattern shows that after every correction the Pound grows even stronger within the next couple of days. As the currency slid a little yesterday, it is likely to add some value today, while the technical indicators are supporting the bullish trend. However, closest resistance still remains at the monthly and weekly R1 levels around 1.5460.
Daily chart
Looking at the hourly chart, the Pound has entered a bearish channel after climbing yesterday a bit before and after the midnight. The downward trend is reinforced by the 20-hour SMA from above, however, even though the technical indicators are showing bearish signals in the hourly time frame, the longer ones are strongly bullish, meaning that later today the pair is likely to regain momentum. The 200-hour SMA underpins this forecast and is likely to serve as the support level for the rebound.
Hourly chart
Sentiment remains neutral
Market sentiment among SWFX participants remains in equilibrium between the bulls and bears. Nevertheless, the number of pending orders in the 100-pip range to acquire the Sterling added a few percentage points. Over the night their share went up from 45% to 52%.
Remaining at Thursday's values, sentiment among the SAXO Bank clients is still bullish at 53%, whereas OANDA traders' confidence in the Cable barely changed since yesterday, as 61% of market participants are to profit from Sterling's appreciation.
Spreads (avg, pip) / Trading volume / Volatility
18% of traders still see 1.54/1.56 in three months
This week traders' expectations changed dramatically, with 70% of Dukascopy Community members predicting the pair to advance. Alongside, the average forecast for the end of the week is placed around the 1.537 level.
A proponent of a bullish scenario, al_dcdemo, reckons that "the pair is likely to correct further towards 1.55 level", adding that reasons for this are "hawkish inflation report and encouraging data late from UK." Meanwhile, Daytrader21 holds a bearish view on the pair, expecting the Dollar to outperform the Pound because of the latest BoE's inflation report, after which inflation should become negative, pressuring the GBP/USD pair to the downside.