- The share of buy commands increased from 53 to 56%%
- 45% of traders are now long the Pound
- 58% of forecasts for Aug 21 are below 1.56
- Main resistance is at 1.5648, the weekly PP
- Nearest support is around 1.55 (weekly S1; trend-line; 20-day SMA)
- Upcoming events today: UK Retail Sales, US Unemployment Claims, US Flash Manufacturing PMI, US Existing Home Sales, US Philadelphia Fed Manufacturing Index, US FOMC Member Fischer Speech
The British Pound was one of the best-performing currencies yesterday. The largest gains of 0.68% were detected against both, the Euro and the Yen. Following with lesser ones against the Kiwi (0.66%) and the Aussie (0.64%). However, the Pound remained relatively unchanged versus the Loonie, losing only 0.06%.
Minutes of the BoE Monetary Policy Committee's May policy meeting showed nine members voted unanimously to maintain the benchmark interest rate at all-time low of 0.5% this month and to keep the size of the central bank's bond portfolio at 375 billion pounds. Central bankers predicted the UK economic growth to accelerate in the second quarter after a weak start to the year. The BoE estimated a quarterly growth in the three months through June to increase to 0.7%. Policy makers also expected slack in the economy is likely to fully eroded within a year, pointing to potential future price pressures that will spur policy tightening.
The comments echo the MPC's view in the Inflation Report released last week that the next likely policy decision would be a hike of the benchmark interest rate, which has been at a record-low 0.5% for more than six years. However, with the inflation rate in negative territory, there is no immediate pressure on the central bank to begin policy tightening now, and markets expect a rate hike to come not earlier than mid-2016. BoE officials led by Governor Mark Carney said they see price-growth to resume towards the end of the year, fuelled by faster wage growth and a recovery in oil prices. Minutes of May's policy meeting showed the MPC expected annual inflation to accelerate "notably" towards the end of 2015 and return to its 2% goal by early 2017.
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 Retail Sales and US Jobless Claims
The UK Retails Sales are expected to rebound from -0.5% to 0.4%, indicating an increase in consumer spending, which accounts for the majority of overall economic activity. However, later today the Department of Labor is to release data on the Unemployment Claims, which is expected to worsen. According to the forecasts, the Cable should edge higher; however, a number of important US data releases is also due by the end of the day, which are expected to show improvements in the US economy. Hence, the end-game for the Cable is somewhat unknown. If gains are to occur, they should be insignificant.
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 maintains channel pattern
The powerful support cluster around 1.55 managed to turn the tide for the Cable. Although the Sterling did rebound, the surge was only 30 pips long. The channel pattern remains intact, as the Cable is expected to extend its rally today. The weekly PP retains its role as the immediate resistance level, while technical indicators are giving bullish signals, bolstering the positive outcome. However, we should not rule out the possibility of a slump back to the support cluster if the US fundamentals outweigh the ones in the UK.
Daily chart
After the Tuesday's sharp decline straight through the 200-hour SMA, the GBP/USD managed to find support close to the lower trend-line of the channel. Since then, the Cable has been slow but steadily regaining bullish momentum. The Sterling is expected to strengthen again today, with the 200-hour SMA being the main target, which could prevent the rally.
Hourly chart
Bears prevailing over bulls again
Market sentiment weakened, as only 45% of traders are now long the Pound. The share of buy commands, on the other hand, increased from 53 to 56%.
Saxo Bank traders are more pessimistic with respect to the UK currency, and even much more than yesterday, as they report that only 38% of its clients are long the Pound. Meanwhile, the sentiment among OANDA traders has 52% of long positions.
Spreads (avg, pip) / Trading volume / Volatility
17% 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 58% of them being below 1.56. The most popular price range is 1.48-1.50, voted for by 17% of respondents. However, the second most popular choice is 1.56-1.58 (13% of answers). The mean forecast for Aug 21 is 1.5366.
During the May 18-22 time period the Dukascopy Community members assume this currency pair to grow further, since more than 58% of all votes are bullish. As predicted by traders, the GBP/USD may close around the 1.560 level this Friday.
This week, geula4x, one of the community members, retains his bullish outlook towards the Cable. He assumes that the overall bullish up-trend remains intact and that the area around 1.55 should provide enough support for the pair to rebound, as it capped the price at the end of April. Aslamhammad, on the other hand, expects the Sterling to fall back from 1.58 to 1.56 by the end of the week, although the Cable has already dropped even lower to 1.55 on Tuesday.