- The number of purchase orders decreased from 60 to 52%
- The share of bulls added two percentage points up to 49%
- 51% of forecasts for Sep 1 are now above 1.56
- Closest resistance is at 1.5343, the weekly PP
- Nearest support is located around 1.5190, represented by the Bollinger band, 55 and 100-day SMAs and the weekly S1
- Upcoming events today: UK Manufacturing PMI, US Core PCE Price Index, US Personal Spending, US Personal Income, FOMC Member Fischer Speech, US ISM Manufacturing PMI
The Sterling experienced mostly negative performance during Friday, as it suffered losses against most major peers, with exception against the Kiwi. The British currency lost 0.53% and 0.49% versus the Swiss Franc and the Euro, respectively, following with a 0.16% decline against the Greenback and a 0.11% fall versus the Aussie. However, the Pound gained 0.80% against the Kiwi, while it remained relatively unchanged against the Yen (0.00%) and the Loonie (-0.02%).
The UK economic output rose in line with expectation in the first three months of 2015, marking the lowest growth rate since the fourth quarter of 2012. The British GDP expanded 0.3%, whereas economists had hoped that the Office for National Statistics would revise its growth estimate to 0.4%, when announcing its second reading of data. The Bank of England expects the final revision to show the nation's economy expanded 0.5% during the March quarter and believes growth will accelerate during the three months through June. Economic growth stalled due to the service sector performing worse than previously thought, as well as a widening trade deficit. Manufacturing and construction, which were slightly revised upward, failed to offset a gloomier performance of the services sector, Britain's key growth engine, which accounts for almost 80% of the economy. Trade was also a strong downside contributor to growth, as imports, particularly of oil and machinery, increased at a faster rate than exports. The data also confirmed the economy grew 2.4% over the year to the first quarter, also missing expectations of an upward revision to 2.5%. The ONS also said that UK GDP grew by 2.8% in 2014, compared with 2013.
In a separate release, the ONS said business investment on the quarter performed better than expected, surging 1.7%, which is the highest since the second quarter of 2005.
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 ISM Manufacturing PMI and UK Manufacturing PMI
The two most important events to have high impact on the Cable are the UK Manufacturing PMI and the US ISM Manufacturing PMO. The UK Manufacturing PMI is expected to show improved figures, although in the last two months the actual data surprised to the downside. However, the US Manufacturing PMI, which is also prospected to improve, also turned out to give worse-than-expected figures in the past five months. As a result, a number of other data releases concerning the US economy should help determine the GBP/USD movement 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 to bounce back after reaching 1.52
The Cable extended the losses for the fifth day in a row at the end of last week. Even though the Sterling dropped down to 152.37, it still settled at 1.5290, as the Bollinger band pushed the British currency back. The fall, however, was not as sharp as in the beginning of the week, showing signs of a possible rebound in the near future. Right now a strong support cluster is located around 1.5190, which is likely to limit any losses today and, possibly, cause the Cable to regain momentum. Technical indicators are showing mixed signals in the daily timeframe, unable to confirm the bearish scenario.
Daily chart
The Cable resumed trade within the borders of the descending channel. The Sterling attempted to appreciate, but the resistance trend-line pushed it back down. Since then the GBP/USD was consolidating and is now approaching the upper channel border at 1.5294, which is likely to push the British currency down again.
Hourly chart
The gap between bulls and bears narrowed, bears still in the majority
The share of bulls added two more percentage points up to 49%, whereas the number of purchase orders decreased from 60 to 52%.
The SAXO Bank traders' sentiment remains bearish, as only 45% of their clients hold long positions. Meanwhile, the sentiment among OANDA traders remains unchanged, with only 42% of the positions being long.
Spreads (avg, pip) / Trading volume / Volatility
20% of traders expect the British pound to cost between 1.48 and 1.50 dollars in three months
The mean forecast for Sep 1 is 1.5567. However, votes already shifted to the upside, as 51% of traders now expect the Sterling to cost more than 1.56 dollars in three months. Nonetheless, the most popular price range remains the same, 1.48-1.50, chosen by 20% of the survey participants. The second most popular choice is now between 1.60 and 1.62, selected by 13% of the surveyed.