- Portion of buy commands shifted from 49 to 57%
- 48% of traders now hold long positions (previously 46%)
- 56% of forecasts for Aug 26 are below 1.56
- Main resistance is at 1.5513, the 20-day SMA
- Nearest support is around 1.5405 (200-day SMA)
- Upcoming events today: UK CBI Realized Sales, US Durable and Core Durable Goods orders, US Flash Services PMI, US CB Consumer Confidence, US New Home Sales, FOMC Member Fischer Speech
The British Pound experienced mixed performance on Monday, as it appreciated against some major peers and also declined against others. The Sterling added 0.23% versus the Euro, following with 0.14% and 0.10% gains against the Loonie and the Swissie, respectively. However, a 0.13% loss was recorded versus three major peers: the Aussie, the Kiwi and the US Dollar. The Pound also lost 0.11% versus the Japanese Yen.
The British economy is expected to close its output gap within next year, Mark Carney, Bank of England Governor said, adding that recent slowdown in inflation is due to a fall in food and energy prices. Carney forecast productivity to pick up, but it would not return to historical averages any time soon.
Meanwhile, Carney might face accusations in lack of transparency, after a secret BoE's report was accidentally sent to the Guardian newspaper. The work is known as "Project Bookend", managed by Deputy Governor Jon Cunliffe, was meant to assess potential risks related British exit from the European Union. The email also included guidance for how to rebuff questions from the public. The Bank of England said it would not talk about its assessment in advance but would disclose details "at the appropriate time," adding it had taken a similar approach when it considered the implications of last year's Scottish referendum. Prime Minister David Cameron is a referendum on EU membership by the end of 2017, and the BoE's unfortunate mistake may drag Governor Mark Carney into the political debate. Yet, Cameron said he was confident he could strike a deal on EU reforms that satisfy his demands and those of the British people before holding the referendum. Still, many British business leaders are concerned about the possibility of losing access to their top export markets and there are also worries about the impact on Britain's financial services industry.
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 Core Durable Goods Orders
There will be no significant data concerning the UK economy today, but a vast amount of data is to be released on the US economy. The most high-influence event is the Core Durable Goods Orders, which, according to the forecast, are likely to rise at a higher rate than in the previous month. However, due to a large number of US data releases today, some of which are forecasted to show worse figures than their previous values, the end-game is uncertain.
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 stuck in tight range between 1.54 and 1.55
The Sterling remained flat against the US Dollar through Monday, despite significant upside volatility. As the pair edged up during the first half of the day, the 20-day SMA, along with the 1.55 psychological area, pushed the Cable back to its opening level. Nevertheless, the British currency is likely to suffer some losses today, with the closest support still being the 200-day SMA around 1.5405. Meanwhile, technical indicators keep showing mixed signs, unable to confirm the outcome.
Daily chart
The week began rather calmly for the Cable, as the pair kept consolidating on Monday. However, the overall trend on the hourly chart appears to be bearish, as the GBP/USD pair keeps slowly edging lower after all. The current exchange rate is located far from the 200-hour SMA, indicating that the bearish trend is to remain.
Hourly chart
Bulls pushing closer to equilibrium
Bulls and bears are edging closer to equilibrium, as 48% of traders now hold long positions (previously 46%). There are now more buy commands, as their portion shifted from 49 to 57% of the market.
Saxo Bank traders are more pessimistic with respect to the UK currency, as they report that only 39% of its clients are long the Pound. Meanwhile, the sentiment among OANDA traders broke out of the equilibrium, as only 43% of their positions are now long.
Spreads (avg, pip) / Trading volume / Volatility
18% 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 56% of them being below 1.56. The most popular price range is 1.48-1.50, voted for by 18% of respondents. However, the second most popular choice is 1.56-1.58 (13% of answers). The mean forecast for Aug 26 is 1.542.