- The gap between buy and sell orders narrowed, as 31% of orders are bullish and the remaining 69% are bearish
- Market sentiment deteriorated, as only 51% of all positions are now long, compared to 54% yesterday
- 17% of traders see GBP/USD at 1.54/1.56 in three months
- Closest resistance is located at 1.5096, represented by the monthly S1, while the nearest support rests at 1.5042, the lower Bollinger band
- Upcoming events: MPC Member Weale Speech, UK NIESR GDP Estimate, US 10-y Bond Auction, US Bank Stress Test Results, UK Trade Balance, US Core Retail Sales and Unemployment Claims
The Sterling performed well against most majors, despite some registered declines. The Pound lost 0.38% and 0.40% versus the Greenback and the Japanese Yen, respectively. Nevertheless, noticeable gains of 1.05% were seen against the Euro and 1% versus the Swiss Franc.
British retail spending continued to rise in February, suggesting falling inflation has encouraged consumers to spend, according to the British Retail Consortium. The value of UK retail sales increased 1.7% last month from February last year, following the annual 1.7% rise in January. However, retail spending on the like-for-like basis, which strips out new stores and more closely shows how stores report sales to shareholders, ticked up 0.2% on the year, the same pace of growth as January. Retail sales volumes rose sharply in the fourth quarter of 2014 to the highest level in a decade. Robust sales partly pointed to improved confidence and an increase in consumer credit supply. Economists and policy makers believe low inflation and cheaper energy should continue to underpin spending throughout this year.
In a testimony before the House of Lords Economic Affairs Committee, Mark Carney, the BoE Governor, said UK inflation has declined to the lowest level since the Inflation Targeting introduction two decades ago. Consumer prices are likely to slid further to around zero in the foreseeable future and hover around that levels for much of the year. Carney highlighted that it is inappropriate to use additional monetary stimulus in an attempt to reverse falling inflation triggered by falling oil prices.
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."
US Core Retail Sales and Unemployment Claims both expected to improve
The main events for the Cable have already transpired, with the UK Manufacturing Production surprising to the downside with a -0.5% decline. Less significant but still important releases concern the UK GDP growth estimate by the NIESR and the US Crude Oil Inventories. Tomorrow the UK Trade Balance is expected to post an improvement. However, afterwards the US Core Retail Sales change is predicted to rebound from the negative side, while the Unemployment Claims are expected to decline.
GBP/USD overshoots expectations
On Tuesday the Sterling fell twice as much as anticipated. The monthly S1 was insufficient to prevent the GBP/USD pair from declining deeper, and the currency pair ended the trading day at 1.5066. The technical studies on the daily time-frame remain mixed, while the UK Manufacturing Production is expected to improve; hence, the Pound is likely to appreciate against the Greenback. Additional positive factor could be proximity of the spot price to the key support at 1.4950, but the overall bias is nonetheless negative.
Daily chart
The GBP/USD pair has been sliding down since the end of February, and during that time the Sterling repeatedly failed to breach the resistance trend-line. Today the Pound was close to success, but slumped back down after the poor UK Manufacturing Production data release earlier. The British currency is likely to retain negative bias at least until it reaches the daily S1.
Hourly chart
Sentiment close to equilibrium
Market sentiment deteriorated, as only 51% of all positions are now long, compared to 54% yesterday. Meanwhile, the gap between buy and sell orders narrowed, as 31% of orders are bullish and the remaining 69% are bearish.
The sentiment among the SAXO Bank clients improved, as the gap between long and short positions widened. 54% of positions are longs and 46% are shorts. OANDA traders also have a net bullish outlook with respect to the Cable, but with only 52% of all positions are long.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders see GBP/USD at 1.54/1.56 in three months
In a week's time the sentiment towards the currency pair did not change, as still almost 69% of traders predict the Pound to rise, while last week the idea was supported by 60% of surveyed Dukascopy Community members.
One of the survey participants, michaliero, supports the positive outlook, as in his opinion "the Pound has better fundamental view than the Euro and could try to test 1.54 level in a few days." At the same time, geula4x is a Sterling-bear. According to him, "the previous support area, 1.5200, for the February 6-12, is now resistance, while support lies around the 1.4950 level."