- The number of orders to acquire the British currency remains unchanged at 54%
- Market sentiment is closing in on the equilibrium, as 49% of all positions are now long (previously 48%)
- 15% of traders see GBP/USD at 1.54/1.56 in three months
- Closest resistance is located at 1.5076, represented by the 20-day SMA, while nearest support rests around 1.4918, at the weekly PP
- Upcoming events: UK CPI, UK PPI Input, UK RPI, US CPI and Core CPI, US Flash Manufacturing PMI, US New Home Sales
Yesterday the Sterling declined against most major currencies. The Pound slumped the most versus the Aussie, where a 1.34% loss was detected. Further plunges were registered against the Euro and the Kiwi, dipping 1.09% and 1.11%, respectively. However, the British currency remained relatively unchanged versus the Greenback.
Just two days after UK Chancellor of Exchequer George Osborne presented his Budget for the financial year 2015, country's public finances showed a considerable improvement. On Thursday, the Office for National Statistics published data on Britain's public sector net borrowing in February. Net borrowing, which includes all government's tax receipts and expenses but excludes data from public-sector banks, stayed at 6.9 billion pounds last month, down more than 30% from 10.4 billion pounds during the same month a year ago. Analysts, on average, estimated the budget gap to decrease down to 8.4 billion pounds. The largest part of improvement came from tax receipts as public revenues climbed 7.2%, while spending decreased 0.7%. Despite that, UK budget deficit still remains at a relatively high level. With annual gap between expenditures and tax revenues amounting to around 90 billion pounds, country's deficit-to-GDP ratio remains at 5%, or far above the same indicator for major EU economies, such as Germany or France.
However, British economy is one of the fastest growing among G7 nations, meaning that brightening perspectives for GDP advance and employment are likely to drive UK budget deficit down in the coming years. Mr. Osborne, in turn, intends to fully eliminate the shortfall by financial year 2018-19. It is likely to be reached by further spending cuts, in case the Conservative Party is re-elected into the government after the May 7 general election.
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."
UK CPI and US CPI
The most important data releases for today are the UK CPI and US CPI. The British inflation is expected to decrease, whereas the US one is likely to rise; hence the GBP/USD currency pair is anticipated to edge down by the day's end. However, medium-impact data, such as UK PPI and US New Home Sales, are both to have the opposite results to their CPIs, thus making a case for a mixed reaction on the currencies.
David Starkey, Senior Market Analyst from Cambridge Mercantile Group, commenting on the Fed removing 'patience' from Fed's interest rate guidance, said that "Yellen lowered expectation for GDP, inflation, and as such – the trajectory of Fed rates." He noted that "in December the last economic projections were that the Fed rates would be over 1% at the end of 2015." However, the most recent data showed the Fed now only expects rates to go as high as 0.625% by the end of 2015. "As such, the overall result was Dollar-negative," he explained.
GBP/USD retreats step by step
The British Pound fell on Monday, although not as far as anticipated. The Sterling attempted to reach the 2013 low, but failed, as the January low at 1.4951 prevented a larger decline. The technical indicators are still strongly bearish, suggesting a further slump in the currency. Although the closest support level can be found at 1.4918, the Cable has a chance to reach the 2013 low again by the end of the day.
Daily chart
The Sterling keeps actively trading around the January low at 1.4951. The pair has formed a double top since last week and might now be on the path of entering a triple top. In either case, a plunge in the Pound's value will be expected afterwards.
Hourly chart
Almost neutral sentiment
Market sentiment is closing in on the equilibrium, as 49% of all positions are now long (previously 48%). Meanwhile, the number of orders to acquire the British currency remains unchanged at 54%.
The SAXO Group traders' sentiment remains bearish, but now with 52% of all positions being short. On the other hand, OANDA market participants have a bullish outlook towards the Sterling, as 54% of all positions are long.