- The portion of buy commands slid, from 54% to 49%
- The long positions backed down to their Monday's level of 48%
- 15% of traders see GBP/USD at 1.54/1.56 in three months
- Closest resistance is located at 1.4918, represented by the weekly PP, while nearest support rests around 1.4808, at the 2013 low
- Upcoming events: UK CPI, UK PPI Input, UK RPI, US CPI and Core CPI, US Flash Manufacturing PMI, US New Home Sales
Over the day the British Pound declined against most major currencies. The largest loss of 1.50% was registered versus the Swissie, following with a 0.92% slump versus the Loonie. The Sterling resisted the most against the Euro, having declined 0.50%.
For the first time since data collection on UK inflation began around three decades ago, the main gauge for measuring consumer prices in this country fell as low as zero in February of this year. Numbers, released by the Office for National Statistics, were published worse than expected for both core and headline readings. The average market expectation stood at a 0.1% increase in prices, year-on-year, and should have followed a 0.3% advance in consumer prices during the first month of the year. At the same time, on a monthly basis inflation returned to positive, by picking up 0.3% after a 0.9% retreat seen a month ago. According to the ONS, the biggest part of a decline came from food and non-alcoholic drinks which became 3.3% cheaper during past 12 months. A slight negative effect was provided by gasoline prices; however, their overall impact used to be softer than a couple of months ago, helped by sustained oil prices in February.
At the same time, the Bank of England Governor Mark Carney predicts the CPI reading will most likely fall below zero threshold in coming months, even though the change is mainly driven by temporary factors, such as crude oil prices. Inflation should start growing back to the target mark of 2% in the middle of this year, the time when oil prices started dropping in July 2014. As a result, there is going to be softer pressure on the monetary policy regulator to review its stance in the near term.
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."
US Durable Goods Orders
There are no data releases on the British economy scheduled for today. However, the Census Bureau is to release a report on the US Durable Goods Orders. Growth in the Headline Durable Goods Orders is expected to slow down severely, while growth in the Core number is anticipated to improve. Hence, the US Dollar might fall under serious pressure.
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 plunged, but still above the 2013 low
The Sterling declined for the second day yesterday, although the 2013 low remains unconquered. GBP/USD easily pierced through the initial support and extended the losses. Ultimately, the Pound settled at 1.4848, just 40 pips away from the 2013 low. The technical indicators are strongly bearish, suggesting a further slump versus the Greenback. Nevertheless, fundamental factors are expected to weigh on the Buck today, which may strengthen the British currency. The nearest resistance level rests at 1.4918, while the closest support level remains the 2013 low.
Daily chart
Since the beginning of the week the GBP/USD pair has been trading in a tight range between the January low and 200-hour SMA. Today it is quite possible that the Sterling will gain solid ground above the January low, and it might even reach the 1.50 level.
Hourly chart
Bears prevail over bulls
The long positions backed down to their Monday's level of 48%, and the portion of buy commands also slid, from 54% to 49%.
SAXO Group's traders retain a bearish outlook towards the Pound, but with 53% of participants being short the Sterling. Meanwhile, OANDA's trader sentiment remains slightly bullish, as 52% of all positions are long.
Spreads (avg, pip) / Trading volume / Volatility
15% of traders see GBP/USD at 1.54/1.56 in three months
Concerning the outcome of this week, the votes of Dukascopy Community members are divided nearly equally. Almost 50% of all predictions stay bearish and another 50% remain bullish. Meanwhile, the traders expect the Cable to close around the 1.4879 level this Friday.
One of the community participants, rokasltu, expects the GBP/USD to be at least over the 1.50 level. He bolstered his outlook by saying that "the pair managed to recover a substantial fall." Daytrader21, on the other hand, has a bearish perspective on the Pound. He thinks that "the broad based Dollar strength is still fully in motion." Although in the shorter term "the market seems more prone to consolidation before resuming the bearish trend," he added.