- The share of orders to acquire the Pound also increased, from 54 to 59%
- 58% of traders now hold long positions, compared to 56% yesterday
- 20% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
- The nearest resistance is located around 1.5701, the 20-day SMA
- Immediate support, represented by the weekly S1 and monthly PP, lies at 1.5595
- Upcoming events today: UK Services PMI, UK Helifax HPI, US ISM Non-Manufacturing PMI
The Sterling suffered losses against most major peers on Thursday, with exception against the Kiwi and the Aussie. The Pound slumped the most against the Swiss Franc, losing 0.56%, following with a 0.44% and 0.33% declines versus the Loonie and the Euro, respectively. However, the British currency added 0.14% versus the Kiwi and 0.11% against the Aussie, while remaining relatively unchanged against the US Dollar (-0.05%).
Activity in the British construction sector increased last month at the fastest pace since February, as job creation rose to its quickest pace so far this year. The Markit/CIPS construction PMI jumped to 58.1 in June, compared with 55.9 a month earlier. The data also showed confidence in the sector about the coming 12 months was at the highest level in 11 years. Residential house building remained the fastest growing area in the construction sector. The upbeat construction data contrasted with the Markit/CIPS PMI reading for the manufacturing sector, which showed growth declined to the slowest pace in more than two years in June. The manufacturing PMI reading declined to 51.4 in June from 51.9 in the previous month.
Meanwhile, a separate report showed UK house prices dropped between May and June, whereas analysts had expected a further rise. House prices in Britain declined by 0.2% in the reported period, which led to the annual price index decelerating to the lowest level in two years of 3.3%, down from 4.6% a month earlier, according to the mortgage provider Nationwide. The BoE has been closely monitoring the British housing market, arguing that the increasing burden of households' debt is one of the significant risks to financial stability once interest rates begin to climb. Economists expect UK house prices to continue increasing notably both in 2015 and 2016 after slowing last 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 Services PMI
With the US having a bank holiday today, the only significant event remains the UK Services PMI. The index is forecasted to continue showing expansion in the services sector, which is likely to result in the strengthening of the UK Pound. However, if the Services PMI turns out to be worse-than-expected, we should see the Cable decline today. Furthermore, on Monday, the US ISM Non-Manufacturing will be one of the main market movers, as it's figures will determine the behaviour of all US Dollar crosses.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 likely to rebound from 1.56
The GBP/USD remained relatively unchanged on Thursday, as the support cluster at 1.5595 prevented the pair from falling and, thus, caused a slight rebound. As a result, we expect the Cable to advance again today and attempt to climb back up beyond the 1.5650 area, as the Sterling is unlikely to breach the given support. However, the closest resistance is located at the 1.57 psychological level, namely the 20-day SMA. Meanwhile, technical indicators retain bullish signals, bolstering the possibility of the pair rallying.
Daily chart
On the hourly chart the Cable is seen sliding down, after it was unable to pierce the 200-hour SMA on several occasions. However, yesterday the Sterling appeared to have stabilised, as it kept consolidating around the 1.56 major level. The consolidation is likely to last until the UK fundamental data makes an impact on the pair's movement.
Hourly chart
Bears prevailing over bulls
Market sentiment keeps strengthening, as 58% of traders now hold long positions, compared to 56% yesterday. The share of orders to acquire the Pound also increased, from 54 to 59%.
Although slightly weaker, but other market participants have a bearish outlook towards the Cable. The SAXO Group's sentiment slightly improved, but, nonetheless, remains bearish, as 65% of their traders hold short positions. Meanwhile, bulls are growing stronger among OANDA's traders, with 49% of them holding short positions (previously 44%).
Spreads (avg, pip) / Trading volume / Volatility
20% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
The survey participants have high expectations concerning the Cable, as the majority of them, namely 71%, assume the Sterling will cost more than 1.54 dollars after three months. Nevertheless, the most popular choice shifted from the 1.50-1.52 price range to the 1.60-1.62 interval, selected by 20% of the voters. The 1.50-1.52 interval still has 18% of participants voting for it. According to the survey conducted between June 03 and July 03, the mean forecast for October 03 is 1.5797.
At the end of the previous week, the Sterling was little changed, as uncertainty over Greece's debt negotiations sapped investor demand for the pair. This week, the Pound is seen to reach level of 1.5745, as majority of poll participants are short on the currency.
Once again we have AgentSmith, a member of the Dukascopy community, sharing his opinion on the Cable. AgentSmith is in the minority of traders, as he believes the Sterling is to outperform the Buck by the end of the week. "Currently price is overbought and could move sideways, but I am expecting the price to close around 1.6000 on this coming Friday, June 26", he said. AgentSmith's main rival for this week is geula4x, another community member, who assumes the Pound is to sustain losses. Geula4x believes that since the Cable opened the week with a big gap down and Greece has not reached an agreement with creditors, risks of Greece leaving the Euro Zone rise. "Therefore, USD bulls seem better positioned to take control this week", he added. Geula4x also believes that 1.5770 is the top price the Sterling might reach this week.