- Buy orders now take up 51% of the market
- 43% of all positions are now long (previously 45%)
- 12% of traders expect the Pound to cost between 1.44-1.46 or 1.46-1.48 dollars after a three month period
- Nearest support lies around 1.53, represented by the weekly and monthly R1s, while closest resistance rests at 1.5382, namely the Bollinger band
- Upcoming events: UK CBI Distributive Trades Survey, US MBA Mortgage Application, US Core Personal Consumption, US GDP Annualized, US GDP Price Index, US Personal Consumption Expenditures Prices, US Pending Home Sales, US Fed Interest Rate Decision
The Sterling experienced mixed performance on Tuesday, as it not only appreciated against some major peers, but also declined against others. The British Pound added 0.73% versus the Swiss Franc, 0.66% versus the Greenback and 0.52% versus the Yen, whereas the largest loss of 1.40% was detected against the Australia Dollar.
Britain's economy slowed more sharply than expected in the beginning of the year, challenging UK's Prime Minister David Cameron, who heads for re-election campaign next week. Gross domestic product grew by 0.3% in the first quarter, according to the Office for National Statistics, the slowest quarterly growth since the end of 2012. Economists, however, had expected a marginal slowdown to 0.5%. The main downside drag came from the UK services sector, which accounts for 78.4% of the nation's economic output. The sector expanded 0.5% compared with the last quarter's increase of 0.9%. In addition to that, production declined for the first time since the fourth quarter of 2012, posting a drop of 0.1%.
Measured on an annual basis, GDP was 2.4% higher in the first quarter. It is now 4.0% bigger than its peak before the financial crisis, and 8.4% larger than when Cameron's Conservative-led coalition came to power in May 2010. The first estimate is based on less than 50% of all the data available and includes only figures on the output side of total GDP. Therefore, the headline figure is subject to revisions and economists warn against reading too much into the data. Yet, despite disappointing figures, most economists expect the economy to keep its momentum in 2015 following last year's growth of 2.8%, which was the strongest among the Group of Seven industrialised nations.
Francesca Panelli an analyst from Oxford Analytica, gives her opinion on the overall health of the UK. She said that "uncertainty related to the upcoming UK election may weigh down the services sector, because it's a very sensitive sector to political development." Francesca expects the UK economic growth to pick up later in the year. She elaborated that "the slowdown in services should prove transitory, we had better evidence from higher frequency PMI over the first quarter of the year, and so I think momentum could improve ahead."
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 Fed Interest rate and Annualized GDP
The UK CBI Distributive Trades Survey is expected to show improved data; however, the two main events today concern the US economy. The US economy has been losing momentum and the Bureau of Economic Analysis is forecasting another slowdown of economic growth. Moreover, the Fed is anticipated to hold interest rate at 0.25%. A lot depends on whether the Fed will decide to hike interest rates in June or September. If we have any indication concerning a June hike, the US Dollar will suffer losses, also pressured by the slower GDP growth.
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 climbs up for another day
On Tuesday, the Cable managed not just to edge higher, but even to overperform. The GBP/USD pair breached the strong resistance cluster around 1.53 and kept rising up to 1.5328. This is the third week of pure gains for the Sterling, with exception of last Monday, when the Pound suffered a small setback. Technical indicators are showing bullish signs, suggesting further rally. The Bollinger band, nearest resistance, also backed by the 1.54 psychological level and the weekly R2, which together should stop the surge. However, a jump towards the 200-day SMA at 1.5493 should not be dropped off the map.
Daily chart
A slight correction to the downside was expected yesterday; however, it turned out to be too insignificant. The Cable managed to climb higher, following with a short consolidation in the beginning of Wednesday. The GBP/USD pair is seen rising further, attempting to reach and overcome 1.54.
Hourly chart
Bears keep prevailing over bulls
Less SWFX traders have a positive outlook towards the Sterling, as 43% of all positions are long (previously 45%). The portion of purchase orders is now in the majority; they take up 51% of the market.
SAXO Group traders' sentiment keeps worsening, as the share of longs dropped dramatically, from 45 to 32%. Meanwhile, OANDA now has more traders with a bearish perspective towards the Sterling, rather than bullish. Today 51% of their positions are short.
Spreads (avg, pip) / Trading volume / Volatility
12% of traders expect the Pound to cost between 1.44-1.46 or 1.46-1.48 dollars after a three month period
The mean forecast for July 29 is 1.4958, while only 46% of survey participants expect the Sterling to cost more than 1.50 dollars in three months. Two most popular price intervals are 1.44-1.46 and 1.46-1.48, both chosen by 12% of the surveyed. The second popular choice was divided between four price ranges: 1.40-1.44, 1.42-1.44, 1.52-1.54 and 1.54-1.56, selected by 10% of the voters each.
Concerning present week, the sentiment experienced major changes, as now vast majority of votes are positive on the GBP/USD currency pair, namely 80% of them.
This week, aslamhammad, an active community member, changed his outlook towards the Cable to a negative one. In his opinion "the Pound is having a resistance around 1.52, so below that it should head lower to 1.51, and then break 1.51 level." This was the main argument that resulted in aslamhammad's change of heart. Meanwhile, a trader with a bullish perspective, geula4x, said that GBP/USD seems very bullish on the daily chart. He backed his statement by commenting that "price has been moving sharply higher and broke above the 1.50 big round number, previous resistance area." The reason for this was that the 1.50 area has been capping price multiple times since March 18, therefore, geula4x assumes that the strong break above it suggests a continuation towards 1.55, the next resistance area.