- The portion of purchase orders increased from 56 to 69%
- Still 45% of traders are long the Pound
- 58% of forecasts for Aug 22 are below 1.56
- Main resistance is at 1.5712, the monthly R1
- Nearest support is around 1.5648 (weekly PP)
- Upcoming events today: UK Public Sector Net Borrowing, UK MPC Member Shafik Speech, BoE Gov Carney Speech, US CPI and Core CPI, Fed Chair Yellen Speech
The British Pound was one of the best-performing currencies yesterday, as it appreciated against most major peers. Substantial gains were recorded against the US Dollar (0.81%), the Swissie (0.77%), the Loonie (0.73%) and the Euro (0.64%). The Kiwi was the most resilient, allowing the Sterling to gain 0.24% against it.
UK retail sales unexpectedly jumped in Aprils as warm weather boosted clothing demand the most in four years. The volume of sales including auto fuel soared 1.2% from March, the Office for National Statistics reported, after the 0.7% decline in the preceding month and compared with economists' expectations for a 0.4% gain. Clothing and footwear sales were the biggest contributor to retail sales growth, jumping 5.2%, the biggest gain since April 2011. In the three months through April, retail sales increased 0.7% from the previous three month-period. They have now risen for 26 consecutive quarters, the longest streak of sustained growth since records began in 1996. Sales were also boosted by lower costs, driven mostly by cheaper oil and food in international markets. Average store prices declined for the 10th month in a row, with gasoline stations curing prices the most.
The UK economy expanded at a slower pace during the first quarter of this year, fuelling concerns about hurdles undermining the recovery such as weak productivity. Last week, the Bank of England revised downwards its growth forecast for 2015 to 2.4% from 2.9% it estimated in February. However, the central bank's policy makers say they believe GDP growth will accelerate during the second quarter and that disappointing earlier figures for the first quarter are likely to be a subject to revision. The second estimate of UK's GDP is scheduled on May 28.
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.
US Inflation Data and UK Governor Carney Speech
The most important events to influence the Cable today are the US inflation data and the BoE Governor Carney's speech. The CPI in the US is expected to grow at a slower rate, compared to the previous month, which should pressure down the US Dollar, giving the Sterling more space to advance. Later today on the ECB Forum on Central Banking Mark Carney will discuss the inflation, unemployment in the UK, as well as the monetary policy of the BoE, giving his prospects on each of the topics. A more hawkish speech will boost the Sterling, allowing the Cable to rise again 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 attempts to negate weekly losses
The Sterling appreciated against the US Dollar for the second day yesterday. The British currency almost managed to erase Tuesday's losses, with the session high even stretching out to 1.57. However, the weekly PP limited the rally and forced the pair to settle at 1.5655. The Cable is likely to edge up again today, with the monthly R1 acting as the closest resistance at 1.5712. Nonetheless, a surge to 1.58 is also possible if the US fundamentals show weak figures. Technical indicators remain bullish, bolstering the positive outcome.
Daily chart
The channel lower border stopped the Cable from falling on Tuesday. Since then the currency pair has been slowly advancing until yesterday, when the Sterling soared and breached the 200-hour SMA. The 1.57 area limited the gains, forcing the pair to start consolidating, as the SMA now provides significant support.
Hourly chart
Bearish sentiment unchanged
The share of bulls remained unchanged, still 45% of traders are long the Pound, whereas the portion of purchase orders increased from 56 to 69%.
Saxo Bank traders are more pessimistic with respect to the UK currency, and even much more than yesterday, as they report that only 34% of its clients are long the Pound. Meanwhile, the sentiment among OANDA traders has 56% 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 22 is 1.5374.
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.