- The share of orders to acquire the Pound edged up from 51 to 56%
- Traders' sentiment remains bullish at 52%
- 16% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
- The nearest resistance is located at 1.5702, the weekly R1
- Immediate support, represented by the monthly and weekly PPs and the 20-day SMA, lies around 1.5590
- Upcoming events today: US Treasury Sec Lew Speech, UK Public Sector Net Borrowing
The Sterling ended the week with rather good performance, as it appreciated against most major peers, with exception versus the US Dollar and the Yen. Gains of 0.57%, 0.49% and 0.45% were recorded against the Aussie, the Swissie and the Euro, respectively. Nevertheless, the British Pound remained relatively unchanged against the Loonie and the Kiwi, adding 0.10% and 0.06%, respectively, while losing 0.05% versus the US Dollar and 0.07% against the Yen.
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.
Treasury Sec Lew Speech and UK Public Sector Net Borrowing
The week is to begin with a lack of fundamental data, which could influence the market. On Monday we could only expect the US Treasury Secretary Speech, which will concern the importance of financial reform. On Tuesday, the only relevant event will be from the UK side, namely the Public Sector Net Borrowing, which not only showed better-than-expected figures in the previous several reports, but is also forecasted to show signs of improvement at tomorrow's release as well. As a result, the Cable is likely to shift to the upside, until more significant events begin occurring starting from Wednesday.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 floats around 1.56
The Cable experienced substantial volatility last Friday, reaching both the support and resistance targets. Nevertheless, the trading day still ended with the Sterling edging slightly lower, but stabilising in front of the monthly PP at 1.56. Technical studies are now suggesting the GBP/USD is to decline, but the 1.56 level is now also bolstered by the weekly PP and 20-day SMA, which altogether should cause a rebound. However, gains are unlikely to outstrip 25 pips.
Daily chart
After almost reaching a weekly high, the GBP/USD currency pair plunged on Friday, breaching the support trend-line. Although the bullish momentum was regained for a brief while, the following consolidation still caused the trend-line to be pierced for the second time, making it unreliable. The 1.56 level is being tested, but is expected to hold through the day.
Hourly chart
Bulls growing weaker
Although slightly weaker, but traders' sentiment remains bullish at 52% (previously 54%). Meanwhile, the share of orders to acquire the Pound edged up from 51 to 56%.
Other market participants appear to have a bearish perspective towards the GBP/USD. The SAXO Group traders' sentiment remains bearish, but with 56% of their traders holding short positions (previously 57%). 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
16% 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 60% of them. The 1.60-1.62 price interval now has the largest amount of votes, as 16% of traders chose it. The second most popular choice is now taken by the 1.50-1.52 interval, selected by 15% of the surveyed. At the same time, the mean forecast for October 20 is 1.5735.