- Buy commands now take up 57% of the market
- Bulls and bears have reached a perfect equilibrium
- 19% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
- The nearest resistance is located around 1.5650, the weekly R1
- Immediate support, represented by the monthly PP and the 20-day SMA, lies around 1.5595
- Upcoming events today: US Jobless Claims, Fed Chair Yellen Testimony, Philly Fed Manufacturing Index, BoE Governor Carney Speech
The Sterling retains its role of one of the best-performing currencies. The Pound added the most against the Kiwi, 1.89%, following with lesser gains versus the Loonie and the Aussie, gaining 1.48% and 1.02% respectively. However, the British currency remained relatively unchanged against the US Dollar yesterday.
The British unemployment climbed for the first time in more than two years, while faster earnings growth suggests the Bank of England would continue to signal an interest rate hike is moving closer. According to the Office for National Statistics, the jobless rate rose to 5.6% in the three months through May, as the number of employment dropped by 67,000 due to fewer part-time workers. At the same time, average weekly earnings rose at an annual 3.2%, marking the fastest pace in more than five years. Economists predict the wage growth to continue throughout the rest of the year, as it becomes increasingly difficult to find appropriate candidates to fill job openings.
The fact that the unemployment rate rose for the first time in two years, while wages continued to climb, indicates the UK economy is nearing full capacity, adding more pressure on the Bank of England to begin considering tightening monetary policy. BoE policy maker Martin Weale suggested the BoE may start the first round of rate lifts as early as August this year, given the UK labour market has been tightening in recent years, while wage growth accelerates considerably. Earlier this week Mark Carney, BoE Governor, hinted that the central bank may raise rates earlier than expected.
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.
Central Banks' Governor Speeches are to determine the GBP/USD's fate
From the US Side, as every Thursday, we have the US Jobless Claims data release. Although it is an important event, the market reaction tends to be not as crucial. Nevertheless, later today the Philly Fed Manufacturing Index is expected to show a worse-than-before figure, thus nullifying any positive effect the Jobless Claims are to have on the exchange rate. Furthermore, Fed's Head is to testify for the second day today, but her tone is expected to remain unchanged, without any new information to be heard. The final market mover in the evening will be from the UK side, namely BoE's Governor Speech. Mark Carney is to talk about the future monetary policy of the British Central Bank, which could turn the tide for the Cable by the end of the day.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 in tight range between 1.56 and 1.5650
Despite strong US fundamental data, the Cable remained relatively unchanged over Wednesday, as the pair dropped only eight pips. Even though the Sterling remained above the 1.56 level yesterday, it is likely to be tested again today. The 1.56 psychological level is also bolstered by the 20-day SMA and monthly PP, which altogether should prevent the pair from edging lower. Meanwhile, technical indicators retain their bearish signals, suggesting the pair is to decline again today.
Daily chart
Due to the preserved bullish momentum, the Cable failed to resume trade under the 1.56 major level. As a result, the GBP/USD rebounded yesterday, but not enough not erase all daily losses. Nevertheless, there is still room for weakening towards 1.5580, the support trend-line.
Hourly chart
Long and short position ratio is now equal to one
Bulls and bears have reached a perfect equilibrium, whereas the portion of orders to acquire the Pound added six percentage points. The commands now take up 57% of the market.
Other market participants appear to have a bearish perspective towards the GBP/USD. The SAXO Group traders' sentiment remains unchanged, as 57% of their traders still hold short positions. At the same time, OANDA's market sentiment has also reached a perfect equilibrium.
Spreads (avg, pip) / Trading volume / Volatility
19% 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 19% of traders chose it. The second most popular choice is now taken by the 1.58-1.60 interval, selected by 14% of the surveyed. At the same time, the mean forecast for October 16 is 1.5806.
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.