- 65% of all commands in the 100-pip range are to sell
- Sentiment remains unchanged, with 54% of traders being long the Sterling
- 15% of traders see GBP/USD between 1.54 and 1.56 in three months
- Closest resistance is located at 1.4760, represented by the monthly S2, while nearest support rests at 1.4581, the weekly S1
- Upcoming events: US Empire State Manufacturing Index, US Capacity Utilization Rate, US Industrial Production, US NAHB Housing Market Index
The UK Pound declined against most currencies, except for the Euro. The Sterling plunged 0.93% versus the US Dollar and 0.84% against the Japanese Yen. Meanwhile, there was a 0.36% surge versus the Euro.
Output in the British construction sector, which accounts for 6% of the UK economy, unexpectedly declined at the beginning of the year, due to weak activity in the housing sector. Construction output fell by 2.6% in January, against economists' expectations for a 1.2% rise and following the 0.6% gain in December, the Office for National Statistics reported. Measured on year-over-year basis, construction output declined 3.1% after the 5.3% growth in December, recording the first annual decline since May 2013, when it dropped 2.8%. Total new housebuilding fell by 5.0% on the month, the steepest decline since February last year, and dragging the annual rate down to 0.8%. On top of that, there were also signs that the weakness will persist. New construction orders in the final quarter of 2014 dropped 2.9% from the previous three-month period, led by a 6.5% decline in all new housing. The deterioration of housebuilding will raise concerns of a limited supply of new houses, which will not be able to keep up with demand. A survey of chartered surveyors suggested the shortage of new homes coming to the market was likely to push up house prices in the coming years.
The ONS also revised downward the whole fourth-quarter output in construction by one percentage point to a 2.2% drop, but highlighted that the revision does not alter the total GDP growth in the fourth quarter. The final estimate of Q4 GDP is due later in March.
Nicholas Ebisch, Corporate Account Manager at Caxton FX, agrees with Mark Carney's statement before the House of Lords Economic Affairs Committee that "at this point it would be foolish for the BoE to cut interest rates," since it would "add unnecessary volatility to inflation." Ebisch also mentioned that the BoE Governor's use of the word 'foolish' shows that "the MPC is firmly against the interest rate raise at this time."
Sterling likely to feel pressure amid good US data expectations
No significant data releases on the UK are expected until Wednesday. Nonetheless, a number of US data releases are expected to show improved figures, thus underpinning the Greenback.
GBP/USD drops beneath 2013 low
Nicholas Ebisch, talking about the price level in the United Kingdom, said that "the latest BoE inflation outlook forecasts inflation to drop to near zero during mid-2015 and return to around 1% near the end of the year." He added that "the forecast for 2016 is for inflation to continue rising to 1.5% or 2%," namely the central bank's target. According to the analyst, if "wage growth keeps up pace with inflation, we could potentially see robust growth in the UK within a year or so."
Last Friday, the GBP/USD pair dropped further down for the fourth consecutive day. The Cable plunged through the 2013 low at 1.4808 and ended the trading day at 1.4741, under the support cluster. The loss exceeded expectations, as the pair slid by a total of 138 pips and the downward momentum is expected to last during today as well. The technical indicators are giving bearish signals, bolstering this outcome; the closest support level lies as far as the weekly S1 at 1.4581.
Daily chart
After a sharp fall on Friday, the Sterling appeared to have started regaining momentum by the end of that day. The Pound is seen climbing today as well; however, so far the gains have been shallow, and the Cable is expected to decline again.
Hourly chart
Bullish sentiment unchanged
Market sentiment among SWFX traders remains unchanged, with 54% of traders being long the British currency. The portion of bearish orders is now prevailing, as 65% of all commands in the 100-pip range are to sell.
SAXO Group clients' confidence in the Pound weakened even more, as only 51% of market participants are long the Sterling. OANDA traders' attitude towards the Cable remained unchanged, as 54% of all positions are long.