- Only 41% of orders are to acquire the Pound
- 54% of all positions are still long
- 18% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
- The nearest resistance is located around 1.5490, the weekly PP
- Immediate support, represented by the weekly S1, lies at 1.5352
- Upcoming events today: UK CPI, UK PPI, UK RPI, UK HPI, UK Inflation Report Hearings, BoE Governor Carney Speech, US Core Retail Sales and Retail Sales, US Import Prices, US Business Inventories
The Sterling retains its role of one of the best-performing currencies, but this time with exception against the Greenback. The top gains of 1.27% and 0.93% were recorded against the Euro and the Swissie, respectively, following with lesser ones against the Loonie (0.48%), the Aussie (0.37%), the Kiwi (0.35%) and the Yen (0.34%). Nevertheless, the British Pound declined 0.19% versus the US Dollar.
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.
Number of data are to determine the Cable's fate
A considerable number of data releases are due today, concerning both the UK and US currencies. The most important ones to pay attention to from the UK side are the CPI and Inflation Report Hearings. The CPI is one of the most important inflation indicators, as it is used as the BoE's inflation target. The inflation is expected to remain unchanged in comparison with its previous reading. However, according to historical data, the CPI figures tend to disappoint. Furthermore, the Inflation Report Hearings later today is also an event of great importance and is to have a serious impact on the British currency. The UK's monetary policy, as well as the outlook for the future are to be discussed, thus, market volatility is expected during the Hearings. From the US side one should pay attention to the Retail Sales data release, as it accounts for the majority of overall economic activity. The forecast stands at 0.2%, down from 1.2% in the previous month. According to fundamental data, the Sterling should outperform the US Dollar, unless we see figures completely different from expectation.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 to resume the bearish trend
In spite of reaching the monthly PP near 1.56, the GBP/USD currency pair still ended up declining yesterday. The pivot point is now providing resistance and should weigh on the Cable, forcing it to fall deeper today. The nearest support is located around 1.5330, represented by a number of important levels; we should see the Sterling edge closer to the cluster within the week and rebound afterwards. Meanwhile, technical indicators retain their bearish signals, bolstering the negative outcome in the daily timeframe.
Daily chart
On the hourly chart, we can clearly see the Cable piercing the resistance levels yesterday. However, after reaching a daily peak of 1.5590, the GBP/USD was pushed back under the downsliding trend-line and resumed trade without further breaches. The small sidestep is not considered to have broken the bearish trend, but if we see another breach today, the resistance line will become unreliable.
Hourly chart
Bullish market sentiment unchanged
Market sentiment remains unchanged and bullish, as 54% of all positions are still long. However, there are a lot less purchase orders today, namely 41%, compared to 56% yesterday.
Other market participants appear to have a bearish perspective towards the GBP/USD. The SAXO Group traders' sentiment slightly improved, with 53% of their traders now holding short positions (previously 55%). At the same time, the portion of shorts at OANDA now takes up 59% of the market, compared to 51% yesterday.
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 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 18% 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 14 is 1.5828.