- The share of buy orders declined from 64 to 47%
- Market sentiment remains bullish at 59% (previously 60%)
- 17% of traders still expect the Sterling to cost between 1.48 and 1.50 dollars in three months
- Closest resistance is at 1.5371, the 200-day SMA
- Nearest support is located around 1.5343, represented by weekly PP
- Upcoming events today: US Non-Farm Employment Change, US Unemployment Rate, US Average Hourly Earnings and FOMC Member Dudley Speech
The Sterling was one of the best-performing currencies on Thursday, as it appreciated against most major peers. The Pound added the most against the Aussie (1.42%), following with lesser gains of 0.56% against the Loonie, 0.47% versus both, the Kiwi and Euro. The Swiss Franc stood most resilient, as the British currency only added 0.13% against the Swissie.
The Bank of England decided to keep its benchmark interest rate at 0.5%, unchanged at the lowest level since 2009. All of the nine MPC's members voted unanimously to hold the UK interest rate in order to wait for recovery rebound. The decision was made mainly due to inflation rate in Britain that turned negative in April and came in at -0.1%, taken down in large part by the declines in oil prices. The officials of the central bank led by Mark Carney expect annual inflation to come back to 2% target by the beginning of 2017.
The decision to hold rates was also supported by the data, that showed growth of the British economy in the first quarter of 2015 slowed to 0.3%, the worst since 2012, which disappointed the markets. Nevertheless, the UK grew at the fastest pace among the group of seven leading industrial nations in 2014. Survey data this week suggested that growth has picked up in the second quarter of the year, albeit not as quickly as BoE's policymakers predicted. In the meantime, a separate release earlier in the week showed the British major services sector plunged in May, signalizing that the recovery from the weak Q1 could be slower than expected. Investors expect the BoE to raise the borrowing costs slowly and gradually, starting in the first half of 2016.
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 Unemployment Rate and Non-Farm Employment Change
There will be no significant data releases to influence the Sterling today. However, the Non-Farm Employment Change is expected to slightly decrease. The difference is likely to be insignificant, therefore it should not pressure the Greenback too much, taking into account that the Unemployment Rate is to remain unchanged. A FOMC Member will also speak later today most likely concerning the Fed's Interest Rate hike, so overall the US Dollar should gain confidence.
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 unable to break out of 1.52-1.54 cage
Yesterday the Sterling managed to rise against the US Dollar, but did not overstay its welcome above the 1.54 level. Upon reaching the weekly R1 at 1.5450, the British currency fell back to 1.5357, unable to pierce through the resistance cluster. As a result, a small correction is expected today. Technical studies are now giving distinctly bearish signals, bolstering the negative outcome. The closest support rests at 1.5343, namely the weekly PP, but the Cable is still likely to retreat to 1.53.
Daily chart
On Thursday, the Cable managed to pierce through the 200-hour SMA, but after reaching a peak of 1.5440, the pair started falling down. Since further weakness is expected, the Sterling is likely to fall through the 200-hour SMA again, unable to maintain its bullish trend.
Hourly chart
Bulls keep prevailing over bears
Although not as strong as yesterday, but market sentiment remains bullish at 59% (previously 60%). The share of buy orders also declined, from 64 to 47%.
The SAXO Bank traders' sentiment shifted to the bearish side, as 52% of all positions are now short. Meanwhile, the sentiment among OANDA traders reached a perfect equilibrium, with 50% of their positions now being long/short.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders expect the British pound to cost between 1.48 and 1.50 dollars in three months
The majority of the Dukascopy community (52%) now expects the Sterling to cost less than 1.56 dollars in the months. Nonetheless, the most popular price interval remains between 1.48 and 1.50, but selected by 17% of the traders, while the second most popular price interval is divided between 1.50-1.52, 1.60-1.62 and 1.62-1.64, chosen by 13% of the surveyed each. Meanwhile, the mean forecast for September 5 is 1.5553.
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.