GBP/USD stuck in a tight range

Source: Dukascopy Bank SA
  • The share of buy commands dropped from 47 to 33%%
  • Less traders are long the Sterling, only 40% (yesterday 44%)
  • 11% of traders expect the Pound to cost either between 1.44-1.46 or 1.52-1.54 dollars after a three month period
  • Nearest support lies around 1.5288, represented by the weekly R1, while closest resistance rests at 1.5403, namely the weekly R2
  • Upcoming events: UK Mortgage Approvals, UK Consumer Credit, US Markit Manufacturing PMI, US Construction Spending, US ISM Prices Paid, US Reuters/Michigan Consumer Sentiment, FOMC Member Williams Speech

© Dukascopy Bank SA

The British Pound suffered losses yesterday, with exception against the Aussie and the Kiwi. The Sterling declined the most versus the Euro and the Swiss Franc, losing 1.41% and 1.29%, respectively. At the same time, gains of 0.74% were registered against the Aussie and 0.30% versus the NZ 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."


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US ISM Manufacturing PMI



The most important event today, concerning the Cable, is the Markit Manufacturing PMI. The reading in March showed a decline for the first time in 14 months. The fall is considered to be a setback and the figures are expected to improve today. Improvements in UK economy are also anticipated, but the US data is likely to outweigh the UK's, thus a small dip is to 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 stuck in a tight range

Indeed, the Sterling suffered losses on Thursday, but was unable to erase Wednesday's gains. The 200-day SMA provided strong resistance for the second time this week, forcing the GBP/USD pair to bounce back. Moreover, the 1.53 level was tested, as anticipated, but the Pound still closed slightly higher, at 1.5352. Technical indicators are still suggesting a rally to occur today. The fundamental data is expected to strengthen both currencies, thus the Cable is likely to remain trade within the borders of 1.53 and 1.54 levels, which are also backed by weekly R1 and R2, respectively.

Daily chart

© Dukascopy Bank SA

The Sterling has been advancing against the US Dollar for three straight weeks. Yesterday's slump was stopped near the support trend-line, while the Cable is seen consolidating today and slowly approaching the line. If it fails to provide support, a break to the downside is likely, whereas the selling pressure might force the Pound to fall towards 1.52 next week.

Hourly chart

© Dukascopy Bank SA




Bears still prevailing over bulls

Today less traders are long the Sterling, only 40% (yesterday 44%). Meanwhile, the share of buy commands dropped from 47 to 33%.

SAXO Group traders' bearish sentiment returned to its Wednesday's level of 68%. OANDA traders' outlook towards the Cable worsened as well, as only 47% of all positions are long.
















Spreads (avg, pip) / Trading volume / Volatility


11% of traders expect the Pound to cost either between 1.44-1.46 or 1.52-1.54 dollars after a three month period

© Dukascopy Bank SA

The mean forecast for August 1 is 1.5034, while exactly 50% of survey participants expect the Sterling to cost more than 1.50 dollars in three months. The most popular price intervals are 1.44-1.46 and 1.52-1.54, both chosen by 11% of the surveyed. The second popular choice was divided between two price ranges: 1.48-1.50 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.

© Dukascopy Bank SA

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