- No significant difference between the buy (53%) and sell (47%) orders
- More bulls (59%) in the market than there are bears (41%)
- Only 15% of traders assume the Sterling will cost around 1.48 or 1.50 dollars in three months
- The potential upper limit is now 1.5565
- One of the nearest supports is Jun 4 high at 1.5440
- Upcoming events today: US Retail Sales, Unemployment Claims, Import Prices, Business Inventories
Although the fundamentals were weak, the Great Britain Pound was among the top performers yesterday, appreciating 1.01 and 0.94% against the Swiss Franc and the US Dollar, respectively. However, the currency stayed behind the New Zealand Dollar (-0.11%) and the Japanese Yen (-0.41%).
UK manufacturing production dropped unexpectedly in April, while industrial output beat economists' expectations. According to the Office for National Statistics, manufacturing production fell by a seasonally adjusted 0.4% in the reported month, against the consensus forecasts for a 0.1% increase, and following 0.4% gain in March. Measured on an annualized basis, manufacturing output climbed at rate of 0.2%, missing estimates for a gain of 0.4%, after surging at a rate of 1.2% in March. Meanwhile, total industrial production climbed 0.4% from March, overshooting economists' expectations for a 0.1% gain. Oil and gas extraction jumped 8.7%, the biggest increase in more than a year.
At the same time, the latest report by the National Institute of Economic and Social Research suggested that the UK economy gained momentum in the three months through May. The NIESR estimate showed the British economy grew 0.6% in the quarter to May, following the upwardly revised 0.5% growth in the three months to April. NIESR expected the Bank of England to hike interest rates in the first quarter of 2016. In its latest quarterly estimate published earlier in May, NIESR forecast annual economic output growth of 2.5% in 2015 and 2.4% in 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.
Thursday dominated by US data
The period around 12:30 GMT promises to be volatile, considering the number and importance of the scheduled events. Apart from the usual Unemployment Claims, which are expected to stay more or less the same, we also have two releases on the Retail Sales. Both the core and the headline figures are expected to rise considerably. Additionally, Import Prices are expected to advance after the negative 0.3% change a month earlier.
Ross Walker, economist at Royal Bank of Scotland Group, suspects that GBP/USD may descend to 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross 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 keeps rising above 200-day SMA
Despite a large number of resistances the Cable preserved its bullish momentum and closed above the monthly pivot point. The potential upper limit is now 1.5565, where the 38.2% Fibo of the Jul 2014—Apr 2015 sell-off merges with the weekly R2 level. However, there is now an increased chance of a rally beyond the monthly R1 towards the May highs near 1.58. Another important level is 1.5878, represented by the 50% retracement.
Daily chart
On the hourly chart the currency pair also looks strong, as it accelerated the rally after breaking the 200-hour SMA. However, today and perhaps tomorrow there could be a downward correction. One of the nearest supports is Jun 4 high at 1.5440. The long-term moving average is at 1.5330.
Hourly chart
Traders stay net long
There are still more bulls (59%) in the market than there are bears (41%), as the former do not seem to be willing to take profits after the latest rally just yet. As for the orders, there is no significant difference between the buy (53%) and sell (47%) ones right now.
The situation at OANDA and SAXO Bank however, is quite different. There the traders appear to be undecided with respect to the Cable's prospects, and the sentiment is largely neutral. In the first case, 49% of open positions are long. In the second, even less - 46%.
Spreads (avg, pip) / Trading volume / Volatility
Only 15% of traders assume the Sterling will cost around 1.48 or 1.50 dollars in three months
The survey participants keep lifting the expectation plank higher, as the majority (59%) now assume the Sterling will cost more than 1.52 dollars after a three-month period. However, the most popular choice remains between 1.48 and 1.50, chosen by only 15% of the voters. The second place is divided between 1.50-1.52 and 1.62-1.64 price intervals, both selected by 14% of the surveyed. Meanwhile, the mean forecast for September 10 is 1.5534.
This week's participants of Dukascopy quiz continue to be bearish on pair's perspectives, as now 60% of all votes are long, while the average prediction is located on the weekly pivot point at 1.526.
A member of the Dukascopy community, who goes by the nickname ‘past', is in the minority, since he is one of the traders who expect the Sterling to Cable to appreciate by the end of the week. Past said that the GBP/USD is going to stay between support at 1.52 and resistance at 1.55. Nevertheless, another member of the community, geula4x, has a bearish perspective towards the British Pound. He commented that "GBP/USD seems bearish on the daily chart. Resistance lies around 1.5370, which is the recent daily high of June 5 and is also near the previous Candle's close, which was an inverse daily candle with a long wick at top." Geula4x does not expect the Pound to fall below the 1.5088 level, since it held the price on May 4 and 5, but a retest is possible.