- The share of buy commands returned to its Monday's level of 51%
- 45% of all positions are long (previously 40%)
- 13% of traders assume the Sterling will cost between 1.48 and 1.50 dollars in three months
- Weekly PP at 1.5252 acts as the closest resistance, while the nearest support rests at 1.5139, namely the monthly PP
- Upcoming events: UK Markit Services PMI, US MBA Mortgage Applications, US ADP Employment Change, Fed Chair Yellen Speech, US Crude Oil Inventories
The Sterling experienced mixed performance yesterday, as it had minor gains against some major peers, but also serious losses versus against others. The Pound added the most (0.41%) versus the Greenback, following with lesser gains versus the Loonie, the Yen and the Kiwi. At the same time, a significant 0.91% decline was registered against the Aussie, following with a 0.37% drop versus the Swiss Franc.
Activity in the UK construction sector retreated to its lowest level in nearly two years in April as companies put off decisions ahead of this week's national election, but confidence remained high and hinted at a post-election pickup. Markit/CIPS UK construction PMI declined to 54.2 last month, the lowest level in 22 months and down from 57.8 in March. Markit said there was evidence of construction firms delaying spending decisions ahead of the May 7 election. Yet, while confidence slid from the highest level in nine years in March, employment in the sector grew slightly, a sign that companies anticipated business to recover soon.
Britain's overall economic growth slowed dramatically in the first three months of the year, a setback for Prime Minister David Cameron who has based his campaign for re-election on the strength of the recovery. The UK economy expanded by just 0.3% in the three months through March, following growth of 0.6% in the last quarter of 2014. The drop was partly driven by a 1.6% contraction in construction, which shaved 0.1 percentage points off first quarter growth. Economists, however, said the first-quarter GDP weakness would probably prove to be temporary and the British economy would pick up.
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."
UK Markit Services PMI and US ADP Employment Change
The Services PMI in the UK is expected to show slightly worse figures than in the preceding month, while the ADP Employment Change in the US is anticipated to rise. These signs indicate that the Cable should decline; however, the US data tends to disappoint a lot lately. Moreover, the head of the Fed is to make a statement today, which will definitely concern the decision on when the Fed is planning to raise interest rates. If the share of soft data outweighs the strong one, the Sterling will advance against the US Dollar.
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 regains bullish momentum
The British Pound found more support at the 100-day SMA, as it prevented the GBP/USD pair from falling yesterday. The nearest resistance, namely the monthly PP, was easily pierced, as the Cable negated Monday's losses. Nonetheless, the 1.52 level was not reached, but the pair stabilised at 1.5166. Meanwhile, technical indicators are showing distinctly bullish signs, suggesting further rally. The 100-day SMA, along with the 20-day SMA, should prevent any losses if they occur, while the weekly PP should stop the Cable from rising higher.
Daily chart
After consolidating for two and a half days, the GBP/USD pair experienced a hike in the second half of Tuesday. The 1.52 level stopped the pair from advancing further, forcing it to edge slightly down; however, the bullish momentum was regained today. The Cable is closing in on the 200-day SMA at 1.5235. If it manages to overcome that level, growth should become more stable again.
Hourly chart
Gap between bulls and bears narrowed
More traders now have a positive outlook towards the Pound, as 45% of all positions are long (previously 40%). The share of buy commands returned to its Monday's level of 51%.
SAXO Group traders' sentiment worsened again, as 64% of positions are now short, compared to 62% yesterday. OANDA traders, on the other hand, now have bulls prevailing over bears, with 52% of all positions being long.
Spreads (avg, pip) / Trading volume / Volatility
13% of traders assume the Sterling will cost between 1.48 and 1.50 dollars in three months
The mean forecast for August 6 is 1.5049, while the minority (49%) of survey participants still expect the Sterling to cost more than 1.50 dollars in three months. The most popular price intervals is 1.48-1.50, chosen by 13% of the surveyed. The second most popular choice is taken by the 1.42-1.44 price interval, selected by 11% of the voters.
This week's sentiment on the Pound is completely opposite to the one seen a week before, with 67% of SWFX traders waiting for the Cable to drop this week. At the same time, the average expectation for May 8 stays broadly unchanged at last Friday's level of just above 1.515.
Soladood, one of the community members, has a bullish outlook towards the GBP/USD pair this week. He suggests that the bullish trend persists, the pair is just having large pullbacks, but is still going north. Meanwhile, Ayub11, another community member, assumes the Cable will decline, as he said that "queens have no fundamental or technical reason to break 1.5547 level". Ayub11 assumes that the bullish scenery is all fake amid the elections in the UK, thus; he assumes the Cable will fall down to 1.4937.