GBP/USD risks falling deeper down

Source: Dukascopy Bank SA
  • The share of buy orders slid from 58 to 54%
  • Traders' sentiment has reached a perfect equilibrium
  • 18% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
  • The nearest resistance is located around 1.5762, the weekly PP
  • Immediate support, represented by the monthly R1, lies at 1.5703
  • Upcoming events today: UK BBA Mortgage Approvals, US Final GDP, US Final GDP Price Index, US Crude Oil Inventories

© Dukascopy Bank SA

The Sterling experienced mixed performance for the third consecutive day. The British currency managed to appreciate only against the Euro (0.95%) and the Swissie (0.75%), while declines of 0.72% were detected against the Aussie, 0.60% against the US Dollar, 0.46% versus the Kiwi and 0.45% versus the Loonie. Against the Yen the Pound suffered the least, losing only 0.14%.

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.


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UK BBA Mortgage Approvals and US Final GDP

The UK BBA Mortgage Approvals indicates the number of new mortgages approved for home purchases. The measurement shows the health of the UK housing sector and is likely to boost the Pound, since the uptrend is anticipated to persist and show better-than-expected figures. However, later today there will be a data release on the US Final GDP. Although improvements are expected, the figure is still forecasted to be negative. If the GDP data manages to show a positive figure, that would only give the Fed confidence to raise interest rates. This sign would certainly boost the American Dollar.


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 risks falling deeper down

The Cable declined for the second day in a row yesterday, as the weekly PP failed to provide sufficient support. As a result, the Sterling fell under the 1.58 level and even almost reached the 1.57, but was pushed slightly back to 1.5737 by the monthly R1. The weekly pivot point now acts as the immediate resistance. Furthermore, technical studies are now showing very strong bullish signs, suggesting the GBP/USD is to rise today; but a rally is possible only if the US fundamentals disappoint today. Other signs indicate that the Greenback is likely to outperform the Pound, with a possible slump under 1.57.

Daily chart

© Dukascopy Bank SA

After breaching the support trend-line, the Sterling failed to regain the bullish momentum and stay above the 1.58 level. As a result, the Pound extended its decline until it reached the 200-hour SMA. Around 1.5707, however, the Cable found support in face of the SMA, which limited the losses. Right now the given pair is rising, awaiting for the US GDP data to determine further growth or fall.

Hourly chart

© Dukascopy Bank SA



Bulls and bears are equally divided

Traders' sentiment has reached a perfect equilibrium, while the share of buy orders slid from 58 to 54%.

Although slightly weaker, but other market participants have a bearish outlook towards the Cable. The SAXO Group's clients have 72% of short positions, compared to 74% yesterday. Meanwhile the bearish market sentiment of OANDA declined from 59 to 57%.















Spreads (avg, pip) / Trading volume / Volatility



18% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months

© Dukascopy Bank SA

The survey participants have high expectations concerning the Cable, as the majority of them, namely 62%, assume the Sterling will cost more than 1.54 dollars after three months. The most popular price interval is between 1.60 and 1.62 dollars, while the second place is taken by the 1.50-1.52 price range. According to the survey conducted between May 24 and June 24, the mean forecast for September 24 is 1.5645.


Currently, the pair is still trading in the bullish channel, while traders' forecasts divided equally. Speaking about the next week, the average expectation of the Community members went down to around 1.585.

This week aslamhammad, one of the community members, now has a bullish outlook towards the Sterling. He said that "currently the price is overbought and could move sideways, but I am expecting the price to close around 1.60 on this coming Friday, June 26." On the bearish side we have rokasltu, another Dukascopy trader. In his opinion the GBP/USD will come to levels near 1.55 mark, as interest rates for USD will be hiked.

© Dukascopy Bank SA

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