- The buy/sell order ratio now equals one
- 43% of all positions are long today (previously 42%)
- Mean forecast for July 9 is 1.4913
- Resistance lies at 1.4964, represented by the monthly PP, while the weekly PP acts as support at 1.4867
- Upcoming events: UK Trade Balance, UK Official Bank Rate, UK Asset Purchase Facility, US Unemployment Claims
The British Pound performed relatively well over the day. The Sterling advanced the most versus the Loonie and the Euro, 0.72% against each one of them. Lesser gains were recorded against the other major peers, except for the Aussie and the Kiwi, where the Pound lost 0.27% and 0.39%, respectively.
Prices in UK shops declined in March at the fastest pace since records began more than eight years ago amid ongoing supermarket price wars. According to the British Retail Consortium, UK shop price deflation intensified last month, with retail prices being 2.1% lower than a year ago, compared with the 1.7% fall in February. The largest negative contributor was a 7.8% plunge in clothing prices, while food prices dropped 0.9%, the steepest decline on record, compared with a 0.4% fall in the preceding month. Inflation slid to zero in February, according to official data, and the Bank of England expects the British economy to slip into deflation in the first half of this year, the outlook that keeps the central bank in a comfort zone with the benchmark interest rate remaining at all-time low of 0.5% in the foreseeable future.
However, cheaper consumer goods would increase household spending power and encourage Britons to buy more. Confirming that view, the Society of Motor Manufacturers and Traders reported UK car industry saw a record number of sales this century with nearly half a million cars sold in March, marking the 37th month of growth for the new car market. Record low interest rates and affordable credit packages helped the market to expand at the beginning of this year. UK car manufacturing remains one of the strongest production sectors and has also been a crucial driver of the manufacturing sector recovery. The sector has been primarily supported by strong domestic demand.
In light of the recent data, Ian Stewart, chief economist at Deloitte, reckons "the UK has quite good momentum," which largely stems from the exports and the consumer. He also sees "decent recovery" in the investment, and this is likely to result in the UK being "one of the fastest growing economies in Europe." At the same time, Steward does not consider the elections to be a major risk factor for this recovery, though he does acknowledge a likelihood of greater volatility in financial markets in the run-up to the general election.
According to the economist, the general effect of strong economic data out of the UK should be supportive of the Sterling, particularly against the Euro, while concerning the speculations on the UK leaving the European Union, Stewart thinks this is a low-probability event, with the chances that are "well below 50%," since most political parties and a large portion of business and media would likely campaign in favour of continued membership.
UK Official Bank Rate and US Unemployment Claims
Today a number of data releases are anticipated on the British economy. The main one is the BoE's decision on the bank rate, which is expected to remain unchanged. Later today, the US Jobless Claims are expected to increase. Taking this into account, the Greenback might be pressured to the downside today.
David Starkey, market analyst from Cambridge Mercentile, said that the BoE is most likely going to leave the rates unchanged. However, he also mentioned that "there is certainly a bit of dissent amongst the BoE, their chief economist suggested that there could be room for a cut if inflation continues to track negative, while Carney has openly and publicly suggested that the next move is going to be a hike." The analyst also gives his prospects for the near future, saying that "dissent is probably good, the BoE is going to be analysing the situation closely, the majority of the members still lean towards a hike, one descending voice does not suggest that it is going to be a cut in the near term."
GBP/USD rallies
Despite the expectations, the currency pair edged up on Wednesday. The Sterling tested a resistance zone around 1.50, before settling at 1.4874. Judging by the Pound's behaviour in the past two weeks, a second day hike should take place. However, the rise is likely to be insignificant, and the technical studies are giving off mixed signals right now. The gains are to be limited by the 1.49 psychological level.
Daily chart
The Sterling's attempts to erase previous losses were effortless, as in the second half of the day the pair retreated; however, some gains remained. Since the beginning of the week the Pound has fluctuated quite a bit, and most recently it was seen testing the 1.48 level. A correction is likely to take place soon.
Hourly chart
More bearish than bullish traders
Sentiment among the SWFX traders somewhat improved, but remains bearish, as 43% of all positions are long today (previously 42%). At the same time, the buy/sell order ratio now equals one.
The gap between SAXO Group participants' sentiment narrowed, as 47% of positions are now long (previously 43%). Meanwhile, OANDA traders' outlook towards the Pound keeps deteriorating, today 54% of participants are long the Sterling, compared to 57% yesterday.
Spreads (avg, pip) / Trading volume / Volatility
Mean forecast for July 9 is 1.4913
According to the survey, taken between March 9 and April 9, the Sterling is expected to cost 1.4913 dollars in three months. The most popular price interval was 1.44-1.46, chosen by 15% of the traders. The second most popular price ranges (14% of participants each) were 1.48-1.50 and 1.54-1.56, although only 42% of the surveyed expect the Pound to cost more than 1.50 dollars.
The forecasts of the Dukascopy Community members are considerably more bullish than before, as almost 80% predict the GBP/USD pair to rise.
Likerty, one of the Sterling-bulls, expects the Pound to appreciate, as he sees the same pattern as with other majors – bullish trend on the US Dollar correction. Likerty also mentioned that "the Sterling indicated 1.5230's as its next big bull target, but could go even higher." This week Likerty sees the target at 1.4980. Kraismik, on the other hand, has a bearish outlook towards the British currency. He expects the pair to establish a range between 1.4730 and 1.5000.