- The number of buy commands dropped from 51 to 42%
- 41% of traders are long the Pound
- 16% of traders expect the Sterling to cost between 1.44-1.46 dollars after three months
- Nearest support lies at 1.4996, represented by the 55-day SMA, while closest resistance rests at 1.4990, namely the Bollinger band and the 100-day SMA
- Upcoming events: US Initial and Continuing Jobless Claims, US Markit Manufacturing PMI, US New Home Sales Change
The Pound retained its ‘best performer' title, as it appreciated against most major peers. The largest appreciation of 2.5% was detected against the Swiss Franc, following with rather moderate gains versus the Yen (0.95%), the Euro (0.85%), the Kiwi (0.81%) and the Buck (0.74%).
Bank of England officials voted unanimously to maintain interest rates unchanged at a record low of 0.5% in April, with very low inflation being the main reason for keeping a steady stance on monetary policy. Yet, while the central bank expected consumer inflation to briefly slide into negative territory in the coming months, it saw a faster rebound of inflation once the effect of cheap oil and food drops out of CPI calculations towards the end of this year, and the effect of the Pound's appreciation dissipates faster than expected. The minutes showed that "the appreciation of sterling was feeding through more quickly into CPI than expected. That could mean less downward pressure on prices to come and a faster pick-up in inflation when the effects of recent falls in energy and food prices dropped out of the annual comparison." The central bank added that the UK domestic data had been broadly in line with its February forecasts, while the Euro zone appeared to be recovering more strongly than thought.
Governor Mark Carney and other policymakers have said they expect the next move by the Bank to be a rate hike. The minutes published on Wednesday also showed the nine members of the MPC all voted to keep the Bank's purchases of government bonds unchanged at 375 billion pounds.
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.
Jamie Jemmeson, head of trading at Global Reach Partners, talks about the upcoming elections in the UK. He says that the UK is sailing into murky waters right now, with no clear definition of what is going to happen next. Jamie adds that this is also going to lead to more Sterling volatility, so the investor has to be cautious.
He also gave his prospects on the effect the elections might have on the British currency: "I think that generally in terms of you looking at Sterling volatility, a Tory Government would be more positive for the Pound." He still mentioned that "Generally, if you look at historically how the Pound has re-answered, it prefers a Tory Government."
US Jobless Claims
The UK Retail Sales data came out a lot worse than expected. As a result, the Sterling weakened against the US Dollar; nonetheless, the main event ahead is now the US Jobless Claims, where less people are expected to apply for the benefit, meaning that the overall economic health in the US is improving. However, the data might disappoint, amid recent signs of the US economy weakness, despite yesterday's strong Home Sales data. If so, the Pound might regain some ground by the end of the day.
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 exceeds expectations
The Sterling overperformed on Wednesday, as it pierced through the initial resistance level. Moreover, the next resistance level, namely the 55-day SMA, was also breached, as the GBP/USD added 106 pips, despite the strong figures from the United States. Today the technical indicators are pointing north, suggesting the bullish momentum is to persist. Immediate resistance rests at 1.5090, represented by the Bollinger band and the 100-day SMA. Meanwhile, the 55-day SMA should prevent any downside volatility during the trading hours.
Daily chart
After a slight setback on Monday, the Sterling appears to be still gaining ground. Even though the overall bias remains negative (as the Cable was declining since July 2014), we might still see a rebound in the near future.
Hourly chart
Bearish market sentiment unchanged
Market sentiment remains unchanged, with 41% of traders being long the Pound. The number of buy commands, on the other hand, dropped from 51 to 42%.
SAXO Group has more traders with a bearish outlook towards the Cable, as 65% of them are now short the Sterling. Meanwhile, OANDA traders' outlook towards the Pound remained unchanged, as 52% of all positions are still short.
Spreads (avg, pip) / Trading volume / Volatility
16% of traders expect the Sterling to cost between 1.44-1.46 dollars after three months
The majority of the community members, namely 62%, expect the Sterling to cost less than 1.50 dollars after three months. According to the survey, conducted from March 23 to April 23, the most popular price interval was 1.44-1.46, chosen by 16% of the participants. The second most popular price range was 1.46-1.48, selected by 13% of the surveyed.
In a week time, sentiment on EUR/USD did not changed, even became more bearish, as now 64% of traders predict the Pound to lose value.
Aslamhammad, one of the community participants, has a positive outlook towards the Cable this week. He commented that the US Dollar began to weaken, thus there is a possibility of the GBP/USD to exchange higher this Friday. RahmanSL, on the other hand, expects the pair to fall down. He said that "recent gains of Cable are due to steep fall in the European session, as a fresh bid wave caught the US Dollar pushing the Sterling higher across the board." RahmanSL also mentioned that the Greenback was boosted by concerns over the Chinese growth outlook, after the weak Chinese data release.