- The number of orders to purchase the Pound slid from 61 to 47%
- Bulls are taking up 51% of the market
- 18% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
- The nearest resistance is located around 1.60, the Bollinger band
- Immediate support, represented by the weekly PP, lies at 1.5762
- Upcoming events today: MPC Member Cunliffe Speech, US Existing Home Sales
The Sterling experienced mixed performance on Friday, as it not just appreciated against some major peers, but also declined against the others. The largest gains were detected versus the Aussie (0.41%), the Loonie (0.38%) and the Kiwi (0.27%). The Pound also suffered a 0.42% loss versus the Swissie and 0.19% against the Yen. Moreover, the British currency remained relatively unchanged against the US Dollar, adding only 0.02%.
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.
US Existing Home Sales
Apart from the BoE Deputy Governor's speech, there will be no other events concerning the UK economy. Some insight on the future of the UK's monetary policy might be provided, with a hawkish speech strengthening the Sterling. At 14:00 GMT, however, there will be a data release on the US Existing Home sales. Even though the number of sold buildings is expected to rise, compared to the preceding figure, historical data shows that this current data tended to disappoint, with exception on April's release. The Home Resales data will be the main factor to influence the Cable today.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 aims for 1.60
Although the GBP/USD reached the weekly R2 from the downside on Friday, the trade still ended with the Cable edging slightly higher. However, the Sterling remained relatively unchanged against the US Dollar, as the Bollinger band capped the gains at 1.5883. Technical studies suggest the British Pound is to outperform the Buck for another day, but we should not rule out the possibility of the US fundamentals pressuring the Sterling down to 1.58. The upper Bollinger band is likely to cap the daily gains around 1.60 psychological level.
Daily chart
The Cable appears to have started to lose the bullish momentum, as the Pound barely managed to outperform the US Dollar on Friday. Although the pair is climbing in the early hours on Monday, 1.60 level will still be hard to take. The trend-line still provides sufficient support and should limit any near 1.58.
Hourly chart
Market sentiment shifted to the bearish side
Market sentiment remains unchanged, with bulls taking up 51% of the market. The number of orders to purchase the Pound slid from 61 to 47%.
Other market participants seem to have a bearish outlook towards the Cable as well. The SAXO Group's clients have 75% of short positions, while the market sentiment of OANDA has 52% 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 (64%) 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 14% of the surveyed. Meanwhile, the mean forecast for September 22 is 1.5618.