- Percentage of commands to buy the Sterling went down from 59% to 55%
- SWFX market participants remain equally divided between the bulls and bears
- 18% of traders still see the pair between 1.54 and 1.56 in three months
- Upcoming events: UK BBA Mortgage Approvals, US Markit Services PMI, US Consumer Confidence, Fed's Yellen testimony, US New Home Sales Change
Over Monday, the Sterling surged against all its majors. The Pound appreciated 1.62% versus the Swiss Franc, added 0.88% against the Aussie and 0.78% versus the Euro.
British retail sales volumes tumbled to the lowest level in 21 months in February, driven down by weaker food sales. Although, both retail sales volumes and orders dropped markedly in the reported month, store owners were still upbeat over the short-term, saying that sales will bounce back in March. The Confederation of British Industry's retail sales balance plunged to +1 from +39 in January, considerably below economists' forecasts of +34 and the lowest level since November 2013. A reading above 0.0 points to higher sales volume, while below indicates lower. Official data last week showed monthly retail sales fell to the lowest level in twelve months of 0.3% in January but increased 5.4% on the year.
The latest Markit's Household Finance Index indicated ultra-low inflation in the country has continued to boost consumers' optimism at the beginning of the year. Financial morale among consumers jumped sharply as the current and future inflation expectations dropped markedly in recent months. Economists and Bank of England policy makers alike believe low inflation and cheaper energy should continue to underpin spending throughout this year. Consumer price inflation declined to all-time low of 0.3% in January, dragged down largely by cheaper fuels and food prices, and is forecasted to slip further towards zero in spring.
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.
Janet Yellen testimony
Today the US Markit Services PMI figure is expected to weaken. The US Consumer Confidence is also expected to decline from its previous value. However, the main risk event is the testimony of Janet Yellen before the Senate Banking Committee, as the market is anticipating a rate hike this year in light of improving labour market conditions.
GBP/USD extends upward trend
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," said Mark Carney.
The Sterling started the trading week right from the weekly pivot point at 1.5395. GBP/USD pair seems to be extending its upward trend, which has been seen for a month now. Judging by the price's behaviour last month, the Pound is likely to decline a bit today, but doubtfully has the strength to breach the weekly PP downwards. Moreover, technical indicators are showing neutral signs in the short-term, but are signalling a rise on a daily time-frame, suggesting the pair might edge up.
Daily chart
On the hourly chart we can see the pair rebounding from yesterday's slight decline. Moreover, the Sterling managed to penetrate the monthly pivot point resistance level and kept gaining ground. However, technical indicators remain neutral in the hourly time-frame, but pointing south-ish in the longer time periods. Hence, the Pound is likely to extend its rise, but not above the weekly R1 and upper border of Bollinger band resistance levels.
Hourly chart
Sentiment still in equilibrium
Bulls and bears remain in equilibrium in the market sentiment among SWFX traders. Nevertheless, the number of pending orders in the 100-pip range to acquire the Sterling slightly dropped. Over the night their share went down from 59% to 55%.
The sentiment among the SAXO Bank clients is also neutral, as only 51% of open positions are long. OANDA traders have a bullish sentiment towards the Cable, although not as strong as on Monday (62%), only 56% of market participants are to profit from Sterling's appreciation.