- Buy commands now take up 59% of the market
- 53% of traders hold long positions today (previously 54%)
- 16% of traders assume the Sterling will cost either between 1.50 and 1.52 or 1.60 and 1.62 dollars in three months
- The nearest resistance is located at 1.60 major level
- Immediate support, represented by the weekly R2, lies at 1.5838
- Upcoming events today: UK Retail Sales, US CPI and Core CPI, US Unemployment Claims, US Current Account, Philadelphia Fed Manufacturing Index
The British Pound retains its title of one of the best-performing currencies, advanced against most major currencies yesterday. Huge gains were recorded against the Yen (1.24%), the Aussie (1.22%), the Kiwi (1.19%) and the US Dollar (1.18%), following with lesser ones of 0.63% versus the Loonie and 0.39% versus the Euro. However, the Sterling remained relatively unchanged against the Swiss Franc, adding only 0.07%.
While the UK unemployment rate remained steady at 5.5%, the lowest level since 2008, British workers' total pay increased more than expected to reach its fastest rate in almost four years in three months through April. Total average weekly earnings in the three months to April, including bonuses, rose by 2.7% compared with the same period a year earlier, accelerating from 2.3% year-on-year growth in the three months to March. Inflation, in contrast, slid below zero in April, declining by 0.1% compared with the same month, before ticking up to 0.1% in May. The report also revealed that the claimant count declined by a seasonally adjusted 6,500 in May, compared with expectations for a drop of 12,300. April's figure was revised to a decline of 7,800 people from a previously estimated decline of 12,600.
Meanwhile, minutes of the Monetary Policy Committee's June meeting record that all nine panel members voted unanimously to keep the BOE's benchmark interest rate at 0.5% this month and to leave the size of the central bank's bond portfolio at 375 billion pounds. The minutes also showed that policy makers expect annual inflation to accelerate "notably" later this year after data earlier in the week showed consumer prices in the UK climbed on the year in May by just 0.1%. Prices recorded their first annual fall in April for more than 50 years.
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.
UK Retail Sales, US CPI and Philly Fed Manufacturing Index
First of all we expect the UK Retail Sales data releases today, which is the primary gauge of consumer spending and accounts for the majority of overall economic activity in the UK. The Retail Sales indicator rebounded in April, but the forecast for May stands at 0%, while historical data shows mixed figures. Furthermore, later today we should also look into the US CPI, as the consumer prices account for the majority of overall inflation. The CPI is expected to rise by 0.4 percentage points, up to 0.5%, which should give the US Dollar back some strength after yesterday's dovish Fed statement. Moreover, the Philadelphia Fed Manufacturing Index is also expected to improve. It is a leading indicator of economic health, therefore, it should have high impact on the Greenback. Together with the CPI data, the Manufacturing Index should influence the US Dollar to regain some value.
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 stands its ground above 1.58
The Sterling skyrocketed against the US Dollar yesterday, easily piercing through the immediate resistance. Moreover, the Cable reached a six-month high, as it stabilised at 1.5850, just over the weekly R2. However, a correction after such a sharp rally is expected to occur on Thursday, forcing the Pound to retreat to the 1.58 psychological level, which is also bolstered by the Bollinger band. Meanwhile, technical indicators retain mixed signals, unable to confirm the scenario.
Daily chart
On the hourly chart the Sterling almost fell in line with expectations, except for the fact that it did not reach the support trend-line. However, the Cable did appreciate substantially, gaining over 200 pips. After reaching a peak of 1.5850, the GBP/USD began to undergo a correction. We should expect some volatility today, but the end-target remains the 1.58 level.
Hourly chart
Bullish sentiment keeps weakening
Market sentiment keeps worsening, as 53% of traders hold long positions today (previously 54%). The share of orders to acquire the British Pound, on the other hand, gained six percentage points. The commands now take up 59% of the market.
Other market participants seem to have a mostly bearish outlook towards the Cable. The SAXO Group's clients have 75% of short positions, while the market sentiment of OANDA has 57% of bears.
Spreads (avg, pip) / Trading volume / Volatility
16% of traders assume the Sterling will cost either between 1.50 and 1.52 or 1.60 and 1.62 dollars in three months
The survey participants keep lifting the expectation plank higher, as the majority (62%) still assume the Sterling will cost more than 1.54 dollars after a three-month period. However, the most popular choices are now between either 1.50 and 1.52 or 1.60 and 1.62, both chosen by 16% of the voters. The second place is taken by the 1.54-1.56 price intervals, selected by 12% of the surveyed. Meanwhile, the mean forecast for September 18 is 1.5568.
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.