- 49% of all orders are now to acquire the Pound
- 49% of traders are now long the Sterling (previously 45%)
- 14% 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 Parliamentary Elections, US Initial and Continuing Jobless Claims
The Sterling experienced mixed performance over the day. Largest gains of 1.23% and 0.42% were registered against the Kiwi and the Greenback, respectively. However, substantial losses were also detected against the Euro (0.99%) and the Swiss Franc (0.71%).
Activity in the UK services sector accelerated more than expected in April amid growth of new business, while job creation increased at a strong pace. The UK services sector, which accounts for around 78% of the whole economy, stayed firmly above the contraction line for the 28th straight month in April as the Markit/CIPS services PMI gauge advanced to 59.5, up from the preceding month's 58.9, and above the market consensus of 58.5. However, Markit reported that prices charged by service firms dropped for the first time in six months and were at their lowest in more than three years, reducing the chances of the Bank of England hiking interest rates this year.
The services PMI followed much weaker-than-expected equivalent surveys from the manufacturing and construction sectors, which showed parts of the UK economy are struggling, and fuelled concerns that the British recovery was faltering. In the first quarter of the year, growth in Britain's overall economy slowed to just 0.3%. Britain's National Institute for Economic and Social Research also said that it expected growth would accelerate again, although the weak first quarter weakened its forecast for British growth in 2015 as a whole. NIESR revised down its growth outlook for 2015 from 2.9% down to 2.5%. This compares with the growth of 2.8% seen in 2014.
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 Elections and US Jobless Claims
The Parliamentary elections in the UK bring a lot of uncertainty. Both leading parties are expected to fall short of a majority, negative consequences for the Pound are not out of the question. Nonetheless, the US Jobless Claims report is the most significant event today. The number of people applying for unemployment insurance is expected to increase. Hence, it indicates that overall economic health is worsening and, as a result, the US Dollar is to fall under pressure.
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 attempts to negate last Friday's losses
On Wednesday, the Sterling appreciated against the US Dollar, as was expected. The 1.52 level was crossed and the Cable even reached out to 1.53; however, the weekly PP stopped the climb, forcing the pair to settle at 1.5239. Today the British Pound is likely to extend the rally, while technical indicators are showing distinctly bullish signs. Immediate resistance retains its position at 1.5252, although a surge beyond 1.53 is more possible. Further resistance lies at 1.54 psychological level, which is also bolstered by the weekly R1.
Daily chart
Even though the Cable has been gaining ground for the past two days, the situation looks rather grim right now. The 200-hour SMA forced the Sterling to fall back down, piercing the possible support trend-line. However, the fall stopped at 1.52, which might provide sufficient support to extend the rally.
Hourly chart
Market sentiment edged closer to equilibrium
Market sentiment among SWFX traders improved, as 49% of traders are now long the Sterling (previously 45%). The number of buy orders shifted to the minority, as also 49% of them are now to acquire the Pound.
SAXO Group traders' sentiment remains bearish, but with 63% of positions being short, compared to 64% yesterday. OANDA traders, on the other hand, still have a bullish outlook towards the Cable, with 54% of positions being long.
Spreads (avg, pip) / Trading volume / Volatility
14% of traders assume the Sterling will cost between 1.48 and 1.50 dollars in three months
The mean forecast for August 7 is 1.5054, while the minority (48%) 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 14% of the surveyed. The second most popular choice is taken by the 1.42-1.44 price interval, selected by 13% 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.