- The number of buy orders inched up from 39 to 47%
- 55% of positions are long today (previously 56%)
- 17% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
- The nearest resistance is located around 1.5456, the weekly S1
- Immediate support, represented by the weekly S2, lies at 1.5364
- Upcoming events today: UK Trade Balance, US Wholesale Inventories, Fed's Yellen Speech
The British currency experienced mixed performance on Thursday, as it not only appreciated against some major currencies, but also declined against the others. Nevertheless, gains outweighed the losses, as the Sterling added 0.65% versus the Yen, 0.48% against the Euro and 0.39% versus the Swiss Franc. Losses of 0.18% and 0.12% were detected versus the Loonie and the Aussie, respectively, while the Pound remained relatively unchanged against the Kiwi, declining only 0.06%.
The Bank of England held its benchmark interest rate unchanged as strong growth at home was offset by worries about clouding economic outlook abroad. The BoE's Monetary Policy Committee agreed to keep the main policy rate at 0.5%, and the central bank's bond portfolio unchanged at 375 billion pounds, in line with expectations. The minutes on the MPC's decision will be published on July 22. Most economists expect the BoE to begin raising the interest rate in the first quarter next year, if inflation rises in line with expectations and fundamentals do not deteriorate markedly.
The International Monetary Fund expects the UK economy to grow 2.7% this year, marking one of the fastest rates of growth among Group of Seven developed economies. However, the British economy is giving off mixed signals. While growth is seen accelerating in the second quarter, the recovery remains uneven, with the services sector expanding robustly and providing support to the economy, while manufacturing lags behind, staying at the weakest level in more than two years. The British unemployment rate has declined to the lowest level since 2008, and BoE policy makers have signalled they are inching toward lifting borrowing costs but want to see faster growth in wages and prices before acting.
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 Trade Balance and Fed's Yellen Speech
Today's most important events to influence the Cable are the UK Trade Balance and Fed's Chair Speech. The UK Trade Balance is connected to the currency demand, as the foreigners are required to purchase the UK's domestic currency in orders to acquire British exports. The Trade Balance could have a high impact on the market, but usually provides a softer one. According to the forecast, figures are expected to worsen, compared to the previous release, which leaves us with the only mover for today, namely Janet Yellen's speech. Volatility is expected during her speech, as traders will closely pay attention to what she has to say about the monetary policy. Due to poor conditions in the labor market, to which the Fed pays a lot of attention, the interest rate hike is likely to be postponed till the end of 2015, if there will be any this year at all.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 makes another attempt at rising
The Cable remained flat on Thursday, as the Bollinger band prevented the pair from advancing. Nevertheless, the Sterling remains supported by the weekly S1, which proved to be a strong level and is likely to cause the Pound to attempt and rise again today. Immediate resistance remains unchanged, the weekly S1, although the British currency is edging closer to the resistance trend-line, which provided sufficient resistance for the past three weeks. Meanwhile, technical studies retain their mixed signals.
Daily chart
After slumping for two days straight, the GBP/USD appeared to have stabilised for the time being, as the pair traded flat on Thursday. However, some bullish momentum persists, and the Sterling is seen slowly inching higher against the US Dollar. The 1.54 major level prevented the pair to exist the consolidation period yesterday, but if the Pound succeeds, we should see it attempt to negate the weekly losses in the medium term.
Hourly chart
Bullish market sentiment is weakening
Bulls retreated for the fourth consecutive day, as only 55% of positions are long today (previously 56%). The number of buy orders, on the other hand, inched up from 39 to 47%.
Other market participants appear to have a bearish perspective towards the GBP/USD. The SAXO Group traders' sentiment reached a perfect equilibrium, whereas the portion of shorts at OANDA takes up 52% of the market, down from 53%, also aiming to even the bulls and bears.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
The majority of survey participants expect the British Pound to cost more than 1.56 dollars within a three month period, namely 64% of them. The 1.60-1.62 price interval now has the largest amount of votes, as 17% of traders chose it. The second most popular choice is the 1.50-1.52 price range, selected by 16% of the surveyed. At the same time, the mean forecast for October 10 is 1.5807.
Keeping in mind a lack of reports from Britain during this five trading days and potentially, a stronger Dollar, the depreciation can continue. Nevertheless, traders could pay additional attention to the data on the UK trade balance as well as BoE interest rate decision on Friday. Additionally, almost 64% of votes were bearish, "GBP/USD seems bearish on the daily chart. Greece has voted No in the referendum on Sunday. This means that now Greece might exit the Euro Zone altogether. This uncertainty causes strong risk aversion in markets, as investors could prefer USD over GBP, as a "safe haven".
One of the bullish Dukascopy community members, Stix, said that he sees the following week closing with a test of 1.60 area, being mid-point on the Weekly bias. "Pressure is still currently short, so I am expecting a slight break of 1.54 first", he added. However, STARLINE, a trader with a bearish perspective towards the Cable, mentioned that "the Pound should drop significantly, I believe that all the overall sentiment is negative, the Euro is certainly in focus, and the prospects are very pessimistic."