- The number of buy orders inched up from 41 to 51%
- 52% of all positions are now 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 1.5650, the weekly R1
- Immediate support, represented by the monthly PP and the 20-day SMA, lies around 1.5595
- Upcoming events today: UK Average Earnings Index, UK Claimant Count Change, UK Unemployment Rate, US PPI and Core PPI, US Empire State Manufacturing Index, US Capacity Utilization Rate, US Industrial Production, US Crude Oil Inventories, Fed Chair Yellen Speech, FOMC Member Williams Speech
The Sterling gained value against most major currencies yesterday, amid the BoE's monetary policy statement. The largest gains were recorded against four: the US Dollar (0.96%), the Yen (0.94%), the Euro (0.92%) and the Loonie (0.86%). The Aussie and the Swissie were the toughest major peers, as the British Pound added only 0.39% and 0.35% against them, respectively.
Speaking to Parliament's Treasury Committee, Mark Carney, BoE Governor, hinted that UK interest rate hike is getting closer, sending the Pound surging versus the US Dollar. The consideration of lifting interest rates from all-time low became possible due to consistent UK economy's growth above the trend. Once the central bank begins normalizing its monetary policy, adjustments of interest rates would be gradual and to a limited extent, Carney added. Yet, rates would not reach the levels seen before the financial crisis.
Meanwhile, Britain's inflation edged back to zero in June amid start of summer sales and ongoing supermarket price war. According to the Office for National Statistics, the stagnation in the UK consumer inflation followed the 0.1% gain in May and was in line with economists' expectations. The core inflation, which excludes volatile components, declined to 0.8%, down from 0.9%, matching the lowest level since March 2001. Bank of England Governor Mark Carney expected inflation to remain low in the short term, accelerating around the turn of the year. The IMF revised downwards its growth outlook for the UK economy. The institution expects the British economy to expand at a 2.4% pace this year down from 2.7% estimated previously. The economy is set to slow to 2.2% in 2016, compared with a 2.3% forecast earlier.
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.
Vast amount of data drives the Cable today
Today's day is rich with fundamental data releases, especially concerning the Cable. The UK's Claimant Count Change, which gives some insight on the overall economic health in the country, is forecasted to improve today, however, with the Unemployment Rate to remain unchanged at 5.5%. At the same time, the Average Earnings Index is likely to rise for the third consecutive month, providing even more boost the British currency. Furthermore, a vast amount of data concerning the US is due later today, with the most important ones being the PPI and Yellen's Speech. The PPI showed signs of improvement in the previous month, after disappointing the previous several times. Nonetheless, the main market mover will be the Fed's Head Speech, who is expected to provide insight on the expected interest rate hike. Economists argue whether the Fed will raise interest rates once or twice this year, some believe the first rate hike is due in September, others believe it will occur not as early as December. Traders will closely monitor Yellen's speech in order to decipher and comprehend what the Fed has in store for the future. Despite high expectations of the UK strong figures, the US Dollar is still likely to weigh on the Sterling.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 tightly driven by fundamental data
The Cable advanced on Tuesday, amid UK's monetary policy statement. Moreover, the three nearest resistance levels were easily pierced, as the GBP/USD settled at1.5635. Nevertheless, the Sterling is still likely to decline against the US Dollar today, especially if the Fed hints on interest rate hikes. Furthermore, if the fundamentals support the Greenback, we could see the pair erase all yesterday's gains and even fall back to the 1.54 major level. Technical studies are showing bearish signs, bolstering the negative outcome.
Daily chart
The GBP/USD rebounded yesterday, breaching the resistance trend-line, thus, making it unviable. The pair received such a strong boost, that it managed to overcome the previous week's high at 1.5628. Although the bullish momentum seems to be intact, the Sterling is still anticipated to bounce back today at some point, but losses should be limited by the newly formed support trend-line around 1.5530.
Hourly chart
Bullish market sentiment unchanged
Traders' sentiment edged closer to the equilibrium, as 52% of all positions are now long. The number of buy orders, on the other hand, inched up from 41 to 51%.
Other market participants appear to have a bearish perspective towards the GBP/USD. The SAXO Group traders' sentiment fell back, as 57% of their traders now hold short positions, compared to 53% yesterday. At the same time, bulls got up front of bears among OANDA's traders, as 51% of their positions are now long.
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 66% 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 15 is 1.5814.
Keeping in mind the 36% bullish sentiment last week, now Dukascopy Community members are more determined on the nearest positive future development of this currency pair".
The majority of traders assume the Pound is to outperform the US Dollar by week's end. Jognesh, one of the traders with the bullish prospects towards the Cable, suggests that "the GBP saw strong buying this week at a major support confluence area of 1.5340." He states that the end result has been a doji on the weekly candle, and with the US Dollar at a major resistance Fibo level, the expectations is further bullishness for the globally dominating currency. However, Daytrader21, another Dukascopy community member who participated in the poll, has a different view concerning the GBP/USD. "After last week sell-off the market has shifted direction and we should expect another retest of the current low at around 1.5300 figure. Resistance stands at round number 1.5600 which is also a supply zone" – he said.