- Buy orders now account for 56% of the marke
- SWFX bullish traders' sentiment returned to its Wednesday's level of 58% (previously 59%)
- 16% of traders assume the Sterling will cost around 1.50 or 1.52 dollars in three months
- The potential upper limit is now 1.5562, the weekly R2
- A strong support cluster rests around 1.54
- Upcoming events today: US PPI and Core PPI, US Preliminary UoM Consumer Sentiment
The Sterling experienced rather good performance over the day. A huge surge of 2.71% was recorded against the Kiwi, following with an only 0.52% and 0.51% hikes against the Yen and the Euro, respectively. Moreover, the Pound remained relatively unchanged against the Aussie (-0.05%) and the US Dollar (-0.08%).
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.
US PPI and Consumer Sentiment to determine the Cable's fate
The US PPI is expected to show signs of growth again, compared to a -0.4% figures in the previous month. However, historical data shows that PPI turned out to be worse-than-expected in the past, thus, a similar situation might occur today. Nonetheless, if the data is positive, but fails to meet expectations – it is still a sign of economic growth and should not weigh down the Greenback too much. Moreover, later at 15:00 GMT there will be a data release on the Preliminary UoM Consumer Confidence, which accounts for a majority of overall economic activity. The Index is likely to improve from 90.7 to 91.3, strengthening the US currency and weighing the Cable down.
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 sets eye on 1.54
Despite strong US fundamentals, the Sterling still managed to inch higher against the Greenback yesterday. The Cable did experience downside volatility, but was pushed back up by the weekly R1, unwilling to stabilise under the 1.55 level. Today the British Pound is expected to suffer losses, but a powerful support cluster rests around 1.54, which is likely to limit the fall. Technical studies, however, are giving mixed signals in the daily timeframe.
Daily chart
The Sterling is still showing signs of strength on the hourly chart, as it has been gaining value since the beginning of the week. Some setbacks were on the way, like yesterday; however, a slump is still likely to occur today. The 1.55 psychological level keeps providing support, but the fundamentals should give the required boost to pierce it later today.
Hourly chart
Traders stay net long
SWFX bullish traders' sentiment returned to its Wednesday's level of 58% (previously 59%). At the same time, the portion of commands to acquire the Pound added three percentage points. The orders now account for 56% of the market.
The situation at OANDA improved, as the broker now has a bullish sentiment with respect to the Cable. The SAXO Bank, on the other hand, still has more bears than bulls. In the first case, 51% of open positions are long, while in the second 55% are short.
Spreads (avg, pip) / Trading volume / Volatility
Only 16% of traders now assume the Sterling will cost around 1.50 or 1.52 dollars in three months
The survey participants keep lifting the expectation plank higher, as the majority (58%) now assume the Sterling will cost more than 1.52 dollars after a three-month period. However, the most popular choice is now between 1.50 and 1.52, chosen by only 16% of the voters. The second place is taken by the 1.58-1.50 price interval, selected by 15% of the surveyed. Meanwhile, the mean forecast for September 12 is 1.5524.
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.