- The number of buy commands increased from 57 to 77%
- 59% of all positions are now long (previously 53%)
- 20% of traders still expect the Sterling to cost between 1.48 and 1.50 dollars in three months
- Closest resistance is at 1.5343, the weekly PP
- Nearest support is located around 1.5207, represented by the 55-day SMA
- Upcoming events today: UK Services PMI, US Trade Balance, US Markit Services PMI, US ADP Non-farm payrolls, US ISM Non-Manufacturing PMI, US Fed's Beige Book, US Crude Oil Inventories
The Sterling experienced mixed performance over Tuesday, as it not just appreciated against some major peers, but also declined against the others. The largest gains were detected against the US Dollar (0.93%) and the Yen (0.40%). However, a 1.22% and 1.09% slumps were recorded versus the Aussie and the Euro, respectively; following with lesser losses against the Swiss Franc (0.45%) and the Kiwi (0.36%). The British Pound remained relative unchanged against the Canadian Dollar, having lost only 0.03%.
UK construction sector recovered in May from the lowest level in almost two years in April. The Markit/CIPS UK construction PMI bounced back to 55.9 in the reported month from April's 22-month low of 54.2. Optimism among UK construction companies rose to a nine-year peak last month after Prime Minister David Cameron unexpectedly won the general election with an outright majority, and growth in the sector rebounded from a slowdown. The PMI also showed construction firms employed staff at the fastest pace in five months during May. However, Markit said it was unclear if the uptick in confidence would translate into increased output volumes, highlighting that all parts of the construction industry have lost traction over the past 12 months, even after taking May's PMI rise into account.
Meanwhile, according to New Economics Foundation, British think-tank, the UK's financial system is the most vulnerable among the G-7 economies, and only structural reforms can help protect it from another financial disaster. The report reveals that the regulatory changes implemented since the 2008 banking crisis have been insufficient and a threat of upheaval still persists. Among the main reforms that the NEF recommends are a full separation of high street banks from investment banks, and more competition in the banking sector.
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 Services PMI and US ADP Non-Farm Payrolls
The UK Services PMI showed good figures in the previous data releases, beating the expectations. Although a downturn is expected in the May's report, it was also anticipated in the April's one as well. Nonetheless, the figures are to remain above the 50 level, indication industrial expansion. Later in the day there will also be a data release on the ADP Non-Farm payrolls in the US. The payrolls have shown worse-than-expected figures in the past four months, so a rebound is likely to finally happen. According to the forecast, the number of employed people should increase from 169k to 198k. If the data manages to meet the expectation, it will result in a significant boost to the US Dollar, thus pressuring down the Sterling.
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 resume sliding down
The strong support cluster around 1.52 managed to not just turn the Greenback around, but even give a solid nudge. As a result, the Cable surprised with its performance on Tuesday, as the pair erased Monday's losses and went over the 1.53 area. However, technical studies are showing bearish signs today, suggesting the correction will not last, and the GBP/USD will maintain the bearish trend. A significant resistance cluster rests around 1.5390, which is expected to either limit the possible rally, but most likely push the Cable back down to 1.53.
Daily chart
As the Cable approached the resistance trend-line yesterday, it was expected to bounce back; however, that was not the case. The Sterling broke out of the pattern and soared above the 1.53 level. It kept climbing at a slower pace today, reaching the 100-hour SMA. If the Pound manages to stabilise above the SMA, we might see further growth in the GBP/USD.
Hourly chart
Bulls now take up the majority of the market
Market sentiment improved again, as 59% of all positions are now long (previously 53%). The number of buy commands also increased, from 57 to 77%.
The SAXO Bank traders' sentiment remains bearish, but edges closer to the equilibrium, as only 51% of their clients hold short positions. Meanwhile, the sentiment among OANDA traders improved again, with 53% of their positions now 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 Dukascopy community is equally divided, as exactly half of the survey participants expect the Sterling to cost more than 1.56 dollars in the months, while the other half expects the price to fall under this level. Nonetheless, the most popular price interval remains between 1.48 and 1.50, selected by 20% of the traders. Meanwhile, the mean forecast for September 3 is 1.5551.
At the moment of writing, Dukascopy traders were strongly bearish on the Cable, since 100% of all positions were short. The following tendency persists in extremely rare cases, when almost all the traders are voting for the pair's negative development. The consensus forecast suggests that the couple will end this trading week at 1.521, down from the last week's close at 1.552.
Since all of the traders hold short positions on the Cable, we don't have any contradicting opinions this week, the votes were unanimous. However, one of the community members, geula4x, commented on why he has a bearish outlook towards the Sterling. He said that "GBP/USD seems very bearish on the daily chart. Price has dropped sharply from May 14 1.5800 highs." The trader expects the Cable to retest the support around 1.5088 this week again.