- Buy orders now take up 51% of the market
- 48% of all positions are long today (previously 47%)
- 14% of traders assume the Sterling will cost between 1.42 and 1.44 dollars in three months
- The weekly R1, along with the Bollinger band, act as the closest resistance around 1.5615, while the nearest support now rests at 1.5442, namely the 200-day SMA
- Upcoming events: UK Manufacturing Production, UK NISER GDP Estimate, US JOLTS Job Openings, US Monthly Budget Statement, FOMC Member Williams Speech
The British currency was one of the best performers yesterday, as it appreciated against most major peers. A huge rise of 2.91% was registered against the Kiwi, following with moderate gains versus the Euro (1.42%), the Aussie (1.31%), the Swissie (1.23%), the Yen (1.12%) and the Loonie (1.08%). The US Dollar was the most resilient, as it lost only 0.85% against the Sterling.
The Bank of England kept the benchmark interest rate unchanged at all-time low of 0.5% in April. The central bank also left the size of its asset-purchases at 375 billion pounds. Most economists do not predict the BoE to hike interest rates, which have remained unchanged for more than six years, until early 2016. The BoE postponed its interest rate decision from last week to avoid clashing with the general election, which saw Prime Minister David Cameron's Conservative Party victory with an outright majority. It is believed election result is likely to reinforce the BoE's view that there is no need for an immediate lift of interest rates as Cameron's government will continue to tighten fiscal policy with an attempt to eliminate its budget deficit by 2019.
The BoE's Quarterly Inflation Report and the second letter from Governor Mark Carney to the Chancellor explaining why inflation is more than 1.0% off its 2% goal will provide a greater insight into the BoE's thinking. In February the central bank predicted it would take up to two years for inflation to return to the targeted level, while growth would continue at an above-average pace of just under 3.0%, as the economy has continued to recover after the financial crisis. Since then, growth in the first three months of this year has come in weaker than the central bank expected at just 0.3%. Economists assume the BoE may have to revised downwards its growth forecasts later this week.
Jamie Jemmeson, head of trading at Global Reach Partners, 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 Manufacturing Production and US JOLTS Job Openings
Manufacturing Production has the highest impact on the market, as it accounts for 80% of it. In the UK the production is expected to rise at a slower pace than in the previous month. Moreover, later during the day the Bureau of Labor Statistics is to release data on the job openings in the US. The number of jobs available is likely to increase, thus boosting the Greenback. The forecast tells us that the Cable should decline, but the post-election conditions in the UK keep strengthening the British Pound, whereas the US fundamentals tend to disappoint lately.
Ross Walker, economist at Royal Bank of Scotland Group, shared his view on the short-term forecast for the Cable. He mentioned that GBP/USD has a moderate sell-off and that it could be down to high 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross also mentioned that "the main driver in many ways, as well as the main support in recent times have been the expectations that the Bank of England will raise interest rates at some point next year, probably the beginning 2016."
GBP/USD to overcome 2015 high
The Cable overperformed yesterday, as it appreciated a lot more than anticipated. The 200-day SMA failed to stop the rally, and, as a result, the GBP/USD pair crossed the 1.55 level, before settling at 1.5576, namely the Bollinger band. Today the Sterling is likely to edge up again, with the closest resistance now located around 1.5615, represented by the weekly R1 and the Bollinger band. Meanwhile, technical indicators are still showing bullish signs, bolstering the positive outcome expectations.
Daily chart
As was anticipated, Cable's downslide did not last, as the pair added 186 pips in the middle of the day. The April high was easily pierced, while the 1.56 psychological level was tested. The Sterling has been steadily appreciating against the US Dollar since the middle of April, with minor setbacks on the way. The next target is now the last year's December 31 high at 1.5622.
Hourly chart
Bears still prevailing over bulls
The gap between bulls and bears narrowed, as 48% of all positions are long today (previously 47%). The buy orders shifted to the majority, now taking up 51% of the market.
SAXO Group traders' outlook towards the Sterling keeps worsening, as 72% of positions are short today. Meanwhile, OANDA traders' sentiment remained unchanged, with 55% of positions still being short.
Spreads (avg, pip) / Trading volume / Volatility
14% of traders assume the Sterling will cost between 1.42 and 1.44 dollars in three months
The mean forecast for August 12 is 1.5136, while the majority (58%) of survey participants expect the Sterling to cost more than 1.50 dollars in three months. The most popular price intervals is 1.42-1.44, chosen by 14% of the surveyed. The second most popular choice is taken by the 1.56-1.58 price interval, selected by 12% of the voters.