- 53% of commands are now set to purchase the Sterling
- 47% of all positions remain long
- 62% of forecasts for Aug 19 are below 1.56
- Main resistance is at 1.5712, the monthly R1
- Nearest support is at 1.5648 (weekly PP)
- Upcoming events today: UK CPI, UK PPI, UK RPI, US Building Permits, US Housing Starts
The Sterling appreciated against most major peers over the day, with exception against the US Dollar. The Pound added the most against the Aussie (0.77%), the Euro (0.71%), the Loonie (0.66%), the Kiwi (0.63%) and the Swiss Franc (0.62%). Lesser gains of 0.21% were detected against the Yen, whereas the British currency remained relatively unchanged versus the Greenback (-0.01%).
Earlier, UK manufacturing production rose more than expected in March, while industrial output also overshot economists' forecasts. According to the Office for National Statistics, manufacturing production climbed by a seasonally adjusted 0.4% in the reported month, beating expectations for a rise of 0.3% and following an upwardly revised 0.5% gain in the preceding month. Measured on an annualized basis, manufacturing output edged higher 1.1%, topping estimates for a 1.0% gain, after increasing at a rate of 1.2% in February. The report also showed British industrial production rose the most since September as oil and gas extraction soared and manufacturing increased for a second month. Output gained 0.5% in March from the previous month, whereas economists expected no change. In the beginning of the year, industrial output was revised to show a 0.1% increase from a 0.1% decline, though the ONS acknowledged the effect on GDP would be limited. Oil and gas extraction soared 4.9%, the most since February last year. From a year earlier, industrial output climbed 0.7%.
Meanwhile, the NIESR estimated UK gross domestic product rose 0.4% in the three months through April, following the 0.3% increase in the March quarter. NIESR expects that a softening of GDP growth in the first quarter was temporary and the economy should expand by 2.5% for the year as a whole.
Paul Bednarczyk, head of research at 4CAST, is optimistic with respect to the world's largest economy over the coming months, saying that "we should be seeing some better US numbers coming through," which will lead the Cable to 1.54. Meanwhile, the analyst considers that "over the next three months Sterling will perform well on a trade-weighted basis," but GBP/USD is still likely to decline to 1.4850. In the longer-term perspective, Bednarczyk is also bearish, setting his 12-month forecast at 1.42, which will rather be a story of Dollar strength rather than Sterling weakness.
UK CPI and US Building Permits
The UK CPI, a high importance event, is expected to remain unchanged for the second month in a row. Later on Tuesday, the US Building Permits are expected to grow 20k to 1.06M, according to the forecast. However, the Building Permit historical data shows that the Building Permits figures disappointed most of the times, which might be an issue today.
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: risks skewed to the downside
The British currency experienced weakness against the US Dollar for the second time in a row, as the pair dropped by 75 pips yesterday. Fortunately, the weekly PP was able to stop the decline and might provide enough support for a rebound today. A surge beyond 1.58 is unlikely, as that level has prevented substantial gains in the past; however, we also should not rule out the possibility of a further slump, as the Cable has begun undergoing what appears to be a correction, confirming the channel pattern.
Daily chart
As the Sterling has been losing momentum for two days, the 200-hour SMA edges closer. The SMA reached 1.56 area, while the Cable is traded around 1.5650, and keeps falling. A break through the 200-hour SMA would mean a decline towards the 1.5450 level, the support trend-line, although a rebound is expected to take place today.
Hourly chart
SWFX sentiment remains bearish
The share of bulls remains unchanged, with 47% of all positions still being long. Nonetheless, three percentage points less commands are now set to purchase the Sterling, namely 53% of them.
At the same time, OANDA and Saxo Bank traders are more pessimistic with respect to the UK currency, although not as much as yesterday. The first broker reports that only 41% of its clients are long the Pound, while the sentiment among the Saxo traders has 70% of short positions.
Spreads (avg, pip) / Trading volume / Volatility
14% of traders expect the Sterling to cost between 1.48 and 1.50 dollars in three months
The forecasts for GBP/USD in three months keep improving, but are still below the spot price, with 62% of them being below 1.56. The most popular price range is 1.48-1.50, voted for by 14% of respondents. However, the second most popular choice is 1.56-1.58 (13% of answers). The mean forecast for Aug 19 is 1.5305.