- The portion of buy orders added five percentage points, from 39% to 44%
- The market sentiment remains net bullish, with only 52% of all positions being long
- 17% of traders still see the pair between 1.54 and 1.56 in three months
- Closest resistance is located around 1.51, represented by the monthly S1 and Bollinger band, while nearest support lies at 1.49 weekly S1
- Upcoming events: US JOLTS Job Openings (Jan), UK BOE Gov Carney Speech, UK MPC Member McCafferty Speech
The Sterling declined against most majors, but still was not the worst performer on Friday. The Pound lost 1.33% versus the Greenback and 0.76% versus the Japanese Yen, whereas it gained 0.37% against the Euro and 0.27% against the Kiwi.
Britons' expectations for inflation over the coming 12 months dropped to the lowest level in over 13 years in February, the Bank of England said. Inflation expectations for the year ahead declined to 1.9% last month, the lowest level since late 2001, down from 2.5% in November. Moreover, expectations of inflation in two years' time also fell, down to 2.1% from 2.5%. The projections for five years were also pushed down to 2.8% from 3%. The survey results came as consumer price growth in Britain declined to a record low 0.3% in January. Furthermore, the share of Britons anticipating interest rates to rise in the coming 12 months fell to 36%, following 37% in November, while the proportion predicting a cut in rates doubled to 8%, the highest level since August 2012.
Last week the Bank of England opted to keep the interest rate unchanged in March, marking six years since policy makers reduced borrowing costs to all-time low levels to help the UK economy recover from a deep recession. The Monetary Policy Committee maintained the central bank's benchmark rate at 0.5% and agreed to leave the size of the bond portfolio unchanged at 375 billion pounds. Prospects of a very low near-term inflation led the MPC members to unite on rate vote in January after five months of a disagreement at the panel.
John Redford, senior FX consultant at Worldwide Currencies, considers that "the data are still very strong for the Sterling as a whole", and should the Conservatives form a coalition government as a result of the May elections, he would expect "potentially a move to 1.60 in the short term." Conversely, if Labour forms a government, "1.50 could be very much vulnerable."
Carney's Speech is expected to have high impact on the Sterling
On Monday there are no important US or UK data releases. Nevertheless, on Tuesday two speeches are expected, one by the BoE Governor Mark Carney and the second one by the MPC Member McCafferty, both likely to have serious impact on the British currency.
GBP/USD plunges to a two-year low
The Sterling has been under severe downward pressure for all of the previous week, as the currency slumped for the fifth day last Friday. The GBP/USD pair lost 205 pips on Mar 6, with several supports having no success in attempts to stop the sell-off. The Pound went through the demand area at 1.51 and ended the trading day at a 2013 Feb 28 low (1.5033). Even though the technical indicators are mixed, the pair is likely to rebound slightly today, as we expect a correction following the recent precipitous decline. Closest resistance lies at 1.5097, created by the monthly S1 and lower Bollinger band.
Daily chart
On the hourly chart the GBP/USD pair is seen edging up steadily after Friday's sharp decline. The Pound ignores the Bollinger band, but there is still the daily PP in the way, which might attempt to stop the pair from going higher.
Hourly chart
Bulls close to equilibrium
Although not as strong as last week, the market sentiment remains net bullish, with only 52% of all positions being long. At the same time, the portion of buy orders added five percentage points, from 39% to 44%.
The sentiment among the SAXO Bank clients has more bulls than bears, being that 57% of open positions are long. OANDA traders also have a positive outlook towards the Pound, as 59% of market participants are to profit from Sterling's appreciation.