- The sell order portion increased, taking up 66% of the market
- The percentage of longs remains unchanged at 43%
- 14% of traders see the British currency at 1.44-1.46 dollars in three months
- Nearest support lies at 1.4861, represented by the weekly PP, while closest resistance rests at 1.4964, namely the monthly PP
- Upcoming events: UK MPC Official Bank Rate Votes, UK MPC Asset Purchase Facility Votes, US Existing Home Sales, US Crude Oil Inventories
The Sterling experienced mixed performance on Friday, as it not only strengthened against some major currencies, but also weakened against the others. The Pound added the most against the Loonie, 0.65%, following with a 0.44% gain against the Aussie. Meanwhile, 0.22% and 0.20% losses were registered versus the Euro and the Swissie, respectively.
UK jobless claims dropped to the lowest level in 40 years, while pay growth accelerated, providing Prime Minister David Cameron with a powerful advantage ahead of the general election in May. The Claimant count declined for the 29th consecutive month in March to 772,400, marking the lowest level since 1975, according to the Office for National Statistics. Jobless claims dropped 20,700 last month, taking the rate to 2.3%. As a result, Britain's unemployment rate slid to 5.6% in the three months to February down from 5.8% in the quarter to November, the lowest rate since June 2008.
Meanwhile, wage growth also continued to strengthen. Average weekly earnings, excluding bonuses, rose by 1.8% in the quarter to February, compared with a gain of 1.6% in the three months to January. In February alone, regular pay picked up by 2.2% compared with the same period a year ago. The data also showed private sector regular pay increased by 2.2% in the quarter to February compared with a year earlier. The single month reading showed growth of 2.6%. Including bonus payments, annual earnings growth eased back to 1.7% in the three months to February, after the 1.9% growth in January. This compares with zero inflation in February, which has been caused by a precipitous fall in oil prices.
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.
Fundamental background
The closest day with relevant events on UK or US is on Wednesday. The BoE is expected to refrain from changing interest rates, while the US Existing Home Sales are anticipated to increase. As a result, the Greenback should weigh on the Sterling, unless any surprises occur.
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 fluctuates around 1.4964
Last Friday, the British currency behaved according to the forecast – appreciated versus the Greenback. However, the Cable edged up slightly less than expected. The 1.5050 level was tested, but the monthly PP prevented the pair from rising higher. The pair opened trade just under the monthly PP, which should force the Sterling down, while the technical indicators are giving mixed signals. However, a jump over 1.4965 also has a decent chance to happen.
Daily chart
After rising for a whole week, the GBP/USD pair started to lose momentum. A substantial hike on Friday caused the Pound to bounce back and pierce through the support trend-line. Since then, the Sterling has been consolidating in a tight range between 1.4948 and 1.4971. The pair is currently forming a channel, but is yet to confirm its lower boundary.
Hourly chart
Bearish traders prevail
The percentage of longs remains unchanged at 43%, while the sell order portion increased, taking up 66% of the market.
SAXO Group's trader sentiment worsened again today, 62% of all positions are now short (previously 61%). Meanwhile, OANDA's traders have slightly more bears than bulls, with 51% of all positions being short.
Spreads (avg, pip) / Trading volume / Volatility
14% of traders see the British currency at 1.44-1.46 dollars in three months
The mean forecast for July 20 suggests the Sterling will cost 1.4866 dollars. However, only 40% expect the Pound to exceed the 1.50 price level. The most popular price intervals is 1.44-1.46, selected by 14% of survey participants, while the second place is taken by 1.42-1.44, chosen by 13% of traders.