GBP/USD decides whether to stay above or under 1.55

Source: Dukascopy Bank SA
  • The number of purchase orders edged up from 47 to 56%
  • Long positions now account for only 54% of the market
  • 19% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
  • The nearest resistance is located around 1.5554, the 55-day SMA
  • Immediate support, represented by the weekly PP, lies at 1.5490
  • Upcoming events today: BoE Credit Conditions Survey, US Federal Budget Balance

© Dukascopy Bank SA

The Sterling was one of the best performing currencies on Friday and the weekend, as it appreciated against most major peers, with exception against the Euro. The largest gains were recorded against the Yen, namely 2.08%, following with lesser gains of 1.06% versus the Kiwi, 0.89% versus the US Dollar, 0.87% versus the Aussie and 0.48% against the Loonie. The Pound suffered a 0.28% loss against the Euro, but remained relatively unchanged against the Swiss Franc, adding only 0.02%.

British trade deficit narrowed to the lowest level in almost two years in May as imports declined, while exports to the Euro bloc rose. The trade shortfall shrank to 8.0 billion pounds from 9.4 billion pounds in April, according to the Office for National Statistics. Economists, however, had expected a deficit of 9.7 billion pounds. Goods exports climbed 0.1% in volume terms from April, while imports plummeted 5.5%, dragged down by lower imports of ships and material manufactures. Exports to the Euro zone climbed 3.3%, although sales to the wider European Union fell 0.3%. Imports from the EU decreased 3.3% and those from other countries dropped 5.1%. Britain has largely relied on domestic consumption to underpin its economic recovery since the middle of 2013, frustrating the hopes of Prime Minister David Cameron to make exports a bigger driver of the country's economy. Exporters have struggled with weak demand in the Euro zone, the main destination for British goods and services, and a rally in the Pound.

The ONS also said that construction output dropped by 1.3% in May from April, mainly due to lower housebuilding. It was the biggest decline since February of last year. Compared with the same month a year ago, construction output rose 1.3%, the slowest pace of growth since November 2013.

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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BoE Credit Conditions Survey, BRC Retail Sales Monitor and US Federal Budget Balance

The only relevant events to influence the Cable are the BoE Credit Conditions survey, BRC Retail Sales Monitor and the US Monthly Budget Statement. The BoE's survey report is released every quarter and it closely related to consumer borrowing and spending, it tends to have a moderate impact on the market. Furthermore, the Retail Sales data report is likely to have a lesser impact, as it only concerns the retailers who belong to the British Retail Consortium. This leaves us with the final potential mover for today – the US Federal Budget Balance. Although the Budget Statement is expected to show signs of a surplus, the data will doubtfully exceed the expectations and, therefore, cause the US Dollar to slightly weaken.


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 decides whether to stay above or under 1.55

The Sterling succeeded in outperforming the American Dollar at the end of last week, although the 55-day SMA and the trend-line provided obstacles. The trade gap caused the Cable to open above the resistance trend-line today, but the given pair is expected to experience weakness. The weekly PP is providing support at 1.5490, which if breached would return the GBP/USD on a downsliding path. Technical indicators are giving bearish signals, bolstering the negative outcome.

Daily chart

© Dukascopy Bank SA

The Cable managed to pierce the 1.54 major level to the upside, but met resistance in face of the trend-line and 200-hour SMA at the end of Friday. The trend-line prevented the GBP/USD from edging higher through all of the weekend, until the pair breached it today. This brings more bullish stability for the Sterling and we might see it erase last week's losses.

Hourly chart

© Dukascopy Bank SA



Bullish market sentiment keeps weakening

Market sentiment weakened for the fifth time in a row, as long positions now account for only 54% of the market. The number of purchase orders, however, edged up from 47 to 56%.

Other market participants appear to have a bearish perspective towards the GBP/USD. The SAXO Group traders' sentiment broke out of the equilibrium, with 55% of traders now holding short positions. At the same time, the portion of shorts at OANDA takes up 51% of the market, down from 52%, edging closer to the equilibrium every day.















Spreads (avg, pip) / Trading volume / Volatility



19% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months

© Dukascopy Bank SA

The majority of survey participants expect the British Pound to cost more than 1.56 dollars within a three month period, namely 67% of them. The 1.60-1.62 price interval now has the largest amount of votes, as 19% of traders chose it. The second most popular choice is divided between two intervals: 1.50-1.52 and 1.58-1.60, both selected by 14% of the surveyed. At the same time, the mean forecast for October 13 is 1.5834.

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