- The portion of orders to acquire the British currency returned to its Wednesday's level of 51%
- 54% of traders now hold long positions
- 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: US Building Permits, US CPI and Core CPI, US Housing Starts, US Preliminary UoM Consumer Sentiment, FOMC Member Fischer Speech
The British Pound experienced mixed performance on Thursday, but gains still exceeded losses. The Sterling added the most against the Kiwi, 0.65%, following with a 0.40% and 0.38% gains versus the Euro and the Swissie, respectively. The largest declined of 0.68% was registered against the Aussie, while the Pound remained relatively unchanged against the Yen, adding 0.11%, and the US Dollar, losing 0.10%.
Bank of England Governor Mark Carney hinted that UK interest rates could rise "at the turn of the year", adding that any lift in borrowing costs would be gradual and would not reach the pre-crisis level. Carney said he expected interest rates to rise over the course of next three years from the current level of 0.5%. Carney's comments puts the UK central bank on track to follow the US Fed by hiking interest rates in the near future, after more than six years at record-low levels amid the fallout of the global financial crisis. Hence, there is now a strong possibility that August's meeting could see a renewed split among the nine BoE policy makers for the first time this year. In the second half of last year, before inflation began to fall due to sharply lower oil prices, MPC members Martin Weale and Ian McCafferty voted for higher rates. However, Carney added gathering inflation pressures would become more apparent towards the end of the year as the effect of falling oil prices drop out of the annual inflation rate.
BoE Governor also acknowledged the risks to the UK's economic outlook, including its large current account deficit which argued for a "right policy mix" that includes tight fiscal policy.
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.
US fundamentals in focus for Friday
Since there are no UK relevant events scheduled for today, the Cable is likely to be influenced only by the US fundamental data. The US Building Permits is forecasted to worsen in the July's report, although the previous two times showed signs of improvement. At the same time, the CPI, which accounts for the majority of overall inflation, is expected to grow at a slower pace, while the Core CPI is likely to improve. Due to the mixed signals, secondary events might have a larger than usual impact on the Cable. The expectation of the Fed rising interest rates also remains in play, hopes for which might be bolstered by FOMC Fischer's Speech at 02:00 PM GMT later today, thus, providing the US currency with another boost.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 risks breaking under 1.56
The Cable brought no surprises on Thursday, as it failed to pierce the 1.56 major level. Although technical studies keep showing bearish signs, chances of the Sterling outperforming the Buck remain. From below the GBP/USD is still supported by the strong cluster around 1.56, while the 1.5650 resistance, namely the weekly R1, is not as strong. Fundamental expectations also support the possibility of the Pound advancing further, but if surprises occur, we could see the Cable move the opposite direction towards 1.5550.
Daily chart
On the hourly chart the GBP/USD currency pair was seen declining yesterday. However, the support trend-line provided the Cable with sufficient energy to rebound. The Sterling has been climbing ever since and is on the path of negating this week's losses, at least until the fundamental market movers take effect.
Hourly chart
Bulls now dominating the market
Bulls and bears broke out of the equilibrium, as 54% of traders now hold long positions. The portion of orders to acquire the British currency returned to its Wednesday's level of 51% (previously 57%).
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 also broke out of the equilibrium, with bulls slightly outnumbering the bears. The share of longs takes up 51% of the market.
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 64% 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 now taken by the 1.58-1.60 interval, selected by 14% of the surveyed. At the same time, the mean forecast for October 17 is 1.5804.
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.