- Buy commands now take up 53% of the market
- SWFX market sentiment remains bullish at 54% (previously 55%)
- 16% of traders assume the Sterling will cost around 1.50 or 1.52 dollars in three months
- The nearest resistance is located at 1.5674, namely the Bollinger band
- Immediate support, represented by the weekly PP, lies at 1.5461
- Upcoming events today: UK Average Earnings Index, UK Claimant Count Change, MPC Official Bank Rate, MPC Asset Purchase Facility, UK Unemployment Rate, UK MPC Member Forbes Speech, BoE Governor Carney Speech, FOMC Economic Projections, FOMC Statement, Fed Funds Rate, FOMC Press Conference
The British Pound was one of the best-performing currencies on Tuesday, as it appreciated against most major peers. The largest gain of 0.61% was detected against both, the Euro and the Swiss Franc, following with a 0.49% gain versus the Aussie and 0.47% versus the kiwi. The Sterling, however, remained relatively unchanged the Loonie, adding only 0.05%.
British inflation turned positive again in May after sliding below zero in the preceding month for the first time in 55 years. Consumer prices rose 0.1% in May from a year earlier, following the 0.1% decline in April. Measured on a monthly basis, UK inflation edged higher 0.2%, according to the Office for National Statistics. An upward pressure on prices in May came from a rebound in air fares, which dragged down inflation in April on the different timing of the Easter holidays in 2015 and 2014. Fuel prices gained 1.9% in May from April, reflecting a recovery in global oil prices. Food prices also rose in monthly terms, up 0.1% from April for their first monthly gain since December. Core CPI, a less volatile gauge as it strips out energy and food prices, failed to meet market expectations of reaching 1% and instead accelerated a notch above April's figure to 0.9%. Bank of England Governor Mark Carney previously said inflation was likely to rebound as sharp plunge in global oil prices last year worked itself out of the figures, and that the UK was not threatened by a devastating period of deflation.
A separate report showed that factory gate prices declined by 1.6% in annual terms in May, the slowest drop since December of 2014 and in line with economists' predictions. Also, house prices growth slowed the most in 10 years in April, underscoring uncertainty May's national election and tax changes in Scotland. House prices climbed 5.5% in April, falling from 9.6% in the preceding month.
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 be a story of Dollar strength rather than Sterling weakness.
Vast amount of UK and US data calling the shots
This Wednesday is very rich with economic data releases and events. Concerning the UK, the two most important data releases are the Average Earnings Index and the Claimant Count Change. The Earnings Index is an important gauge of consumer inflation, which is expected to rise from 1.9 to 2.5%. The Jobless Claims are also expected to show better figures, as the number of people claiming unemployment benefits is forecasted to decline. Moreover, the BoE is likely to hold interest rates unchanged once again, suggesting that the Sterling is to receive a strong boost today. Nevertheless, the Fed is also expected to leave the interest rates unchanged, as well as give its projections for the future inflation and economic growth in the US. We should hear some information on whether there will be an interest rate hike in September or this year. This Fed's statement might change the course of the Cable at the end of the day.
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 hopes to penetrate the 1.57 barrier
On Tuesday, the Sterling outperformed the US Dollar for the seventh day in a row. Resistance was met at 1.5644, namely the upper Bollinger band, which forced the Pound to stabilise at 1.5639. Today the Cable is likely to appreciate again, with a major resistance cluster located around 1.57 psychological level. However, we should not rule out the possibility of a slump if the fundamentals disappoint. The worst-case scenario might be a plunge to 1.5461, where the weekly PP rests.
Daily chart
The Cable keeps edging higher for the second week, rebounding from the support trend-line. Yesterday's slump was not an exception, as the pair was pushed back even higher to 1.5650. Right now the GBP/USD is tied to this exchange rate. The pattern is likely to be confirmed again today, as the Sterling is expected to bounce back from the trend-line just before the fundamental data realease.
Hourly chart
Bullish sentiment keeps weakening
Although not as strong as yesterday, but SWFX market sentiment remains bullish at 54% (previously 55%). The number of buy orders also lost one percentage point, as the commands now take up 53% of the market.
Other market participants seem to a mostly bearish outlook towards the Cable. The SAXO Group's clients have 72% of short positions, whereas the market sentiment of OANDA has reached a perfect equilibrium.
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 (60%) still assume the Sterling will cost more than 1.54 dollars after a three-month period. However, the most popular choice is now between 1.50 and 1.52, chosen by 16% of the voters. The second place is divided between the 1.60-1.62 price intervals, selected by 15% of the surveyed. Meanwhile, the mean forecast for September 17 is 1.555.
Speaking about the next week, Dukascopy traders became much more bullish on this currency pair, as at the moment 55% of votes are set long on the Cable. The average expectation of the Community members went up to around 1.545 from the last week 1.525.
The majority of traders still have a positive outlook towards the Sterling this week. Geula4x, one of those traders, suggests that the Cable is very bullish on the daily chart. He mentioned that currently resistance lies around 1.57 round number, which has capped price at May 21-22, therefore, he is curious whether bulls can continue pressing higher this week. However, geula4x says to be wary of the Wednesday's FOMC, which can greatly effect USD value and price movements. Meanwhile, another community member, aslamhammad, expects the Sterling to close lower. "I suppose the Fed to attract buyers by signalling future interest rate hike", he said.