- The share of buy orders retreated to its Wednesday's level of 47%
- Long positions increased by two percentage points to 45%
- Mean forecast for July 10 is 1.4902
- Resistance lies at 1.4791, represented by the weekly S1, while the 1.47 psychological level acts as support
- Upcoming events: UK Manufacturing Production, US FOMC Member Lacker Speech, US Improt Prices, UK NIESR GDP Estimate
The Sterling was one of the worst performers yesterday, as it declined against most major peers. The Pound lost the most against the Kiwi, 1.20%, following with 1.13% and 1.03% plunges versus the Aussie and the Greenback. However, the British currency remained relatively unchanged versus the Euro and the Swissie, adding 0.09% and 0.10%, respectively.
The Old Lady of Threadneedle Street, also known as the Bank of England, left its monetary policy unchanged at the April meeting to see whether a decline in inflation is temporary or exacerbates and turns into a threat for the UK economy. In the last interest rate decision before the general election on May 7, the central bank maintained its benchmark borrowing rate at 0.5%. More details on vote composition among the nine-member Monetary Policy Committee will be revealed in the meeting minutes due out on April 22. The BoE remains in wait-and-see mode as new outlook looms. Officials will report on their forecasts for inflation, economic growth, and the labour market on May 13 as part of the quarterly Inflation Report.
The British economy enjoyed the quickest growth among major advanced economies last year and is predicted to expand by 3% this year, despite a weaker beginning to 2015. Pay growth is starting to pick up, while cost of living dropped sharply on the back of the plunge in global crude prices. Inflation touched zero in February, alleviating pressure on the BoE to start normalizing its very low borrowing costs. All the central bank's rate-setters voted unanimously to maintain rates on hold since the beginning of the year due to decreasing inflationary pressures.
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 Manufacturing Production
The Office for National Statistics in the UK is to publish the data on the manufacturing production over the past month. An increase in production is anticipated, this giving a chance for the British Pound to rebound after yesterday's losses.
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 reaches the lowest level in five years
In contradiction to the forecast the currency pair plunged. The losses were sharp, and only the 1.47 support was able to stop the Cable from falling deeper, as it had done several times in the past. The technical studies remain mixed on the daily timeframe, but the Sterling is likely to rebound today, unless yesterday's factors keep pressuring the pair down. Nearest support is still the 1.47 level, while the closest resistance lies at 1.4791, which is the weekly S1.
Daily chart
The hourly chart shows a gradual change in the Sterling's value. GBP/USD did not trade this low in the last three weeks. However, the pair fluctuates around 1.47, which provided strong support in the past, and thus it might force a rebound again.
Hourly chart
Bulls growing stronger
Once again the traders grew more confident in the Pound, as long positions increased by two percentage points to 45%. Meanwhile, the balance between the buy and sell orders was disturbed, as the share of the former retreated to its Wednesday's level of 47%.
Market sentiment of SAXO Group traders has reached a perfect equilibrium today. At the same time, the outlook of OANDA's market participants improved, as 62% (previously 54%) of traders are now long the Pound.
Spreads (avg, pip) / Trading volume / Volatility
Mean forecast for July 10 is 1.4902
According to the survey, taken between March 10 and April 10, the Sterling is expected to cost 1.4902 dollars in three months. The most popular price interval was 1.44-1.46, chosen by 17% of the traders. The second most popular price range (14% of participants each) was 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.