- The number of orders to acquire the Sterling edged up from 59 to 61%
- Only 51% of traders hold long positions today
- 18% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
- The nearest resistance is located at 1.5877, the Bollinger band
- Immediate support, represented by the weekly R2, lies at 1.5838
- Upcoming events today: UK Public Sector Net Borrowing, FOMC Member Williams Speech
The British Pound appreciated against most major peers yesterday, with exception against the Aussie. The largest gains were recorded against the Swiss Franc (0.35%), the Loonie (0.30%), the Yen (0.29%) and the Greenback (0.26%). However, a 0.20% decline was recorded versus the Aussie, whereas the Sterling remained relatively unchanged versus the Kiwi, adding only 0.04%.
British retail sales unexpectedly rose in May, driven by sales of food and gasoline, as spending on clothing dropped. According to the Office for National Statistics, the volumes of sales climbed 0.2% in the reported month from April, whereas economists had expected a 0.1% decline. Sales soared 4.6% on the year, marking a 26th month of consecutive annual growth, the longest streak since May 2008. Retail sales, which account for 5.6% of Britain's economic output, rose 0.6% in the three months through May from the previous three-month period. Food sales added 0.6% from the previous month, while fuel rose 0.3%. However, sales of clothing and footwear fell 1.6%, declining from a pickup in April when sales jumped 2.9% due to warm weather.
Near-zero inflation and a strengthening labour market are fostering consumer spending as trade continues to act as a drag on economic growth. Average store prices continued to fall for the 11th straight month, declining 2.7% in May this year compared with last year, with the largest contribution coming from petrol stores. In the minutes of its June meeting published earlier in the week, the Monetary Policy Committee said factors limiting price growth were "likely to dissipate fairly shortly," and could strengthen "notably" by the end of the year.
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 Public Sector Net Borrowing
The dovish Fed statement keeps the US Dollar weak, therefore any other fundamental data is unlikely to have a substantial effect on any pair, concerning the Buck. The UK Public Sector Net Borrowing, on the other hand, should influence the Cable negatively. The May figures are expected to be worse than in April, but if expectations are not met, it will only boost the Sterling further. Moreover, this particular data release showed better-than-expected figures during the previous four data releases.
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 struggles to rise above 1.59
The Cable experienced some volatility yesterday, but closed the trade edging higher. The Bollinger band from below cause the GBP/USD to gain an additional 30 pips, despite bearish expectations. The 1.59 psychological level is likely to limit further gains today, while technical studies keep showing mixed signs. Moreover, the pair might finally be pushed slightly back and decline towards 1.5838, where the weekly R2 lies, or even back to 1.58 major level.
Daily chart
The Sterling managed to appreciate again yesterday, despite having signs of a possible correction. However, the Cable was unable to stay above the 1.59 major level, as it resumed trade between 1.5870 and 1.59. The support trend-line lies far away, thus, the bullish trend is unlikely to end this week.
Hourly chart
Bullish sentiment keeps weakening
For the fourth consecutive day the share of longs decreased by one percentage point, as only 51% of traders hold long positions today. The number of orders to acquire the Sterling edged up from 59 to 61%.
Other market participants seem to have a mostly bearish outlook towards the Cable. The SAXO Group's clients have 76% of short positions, while the market sentiment of OANDA has 56% of bearish traders.
Spreads (avg, pip) / Trading volume / Volatility
18% of traders assume the Sterling will cost between 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 choice is now between 1.60 and 1.62, chosen by 18% of the voters. The second place is taken by the 1.50-1.52 price interval, selected by 16% of the surveyed. Meanwhile, the mean forecast for September 19 is 1.5586.
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.