- The share of purchase orders plunged from 55 to 48%
- Only 51% of traders are long the Pound today
- 19% of the poll participants expect the British Pound to cost between 1.60 and 1.62 dollars after a three-month period
- Immediate resistance lies in face of the weekly R1 and the Bollinger band around 1.5705
- The nearest support rests around 1.5594, represented by the monthly PP
- Upcoming events today: UK Retail Sales, US Jobless Claims
The British currency has recovered after slumping against most major peers for two days straight. Gains were detected against most currencies, with the largest ones against the Loonie (1.16%) and the Aussie (1.05%). The Sterling appreciated moderately versus the Swissie, adding 0.56%, the Yen, gaining 0.54%, the Kiwi and the Euro, adding 0.49% against both. The US Dollar was the most resilient, as the Pound managed to advance only 0.38% against it.
Bank of England policy makers voted unanimously in July to hold the central bank's key interest rate unchanged. Yet, their unanimity masks increasingly lively discussions over the timing of interest rate hike. Minutes of the Monetary Policy Committee's July policy meeting showed all nine members of rate-setting board voted to keep the benchmark interest rate at a record low of 0.5% and leave the central bank's bond portfolio at 375 billion pounds. The time for an interest rate hike is approaching and it is "highly likely" that rates will continue to rise over the next few years, BoE policy maker David Miles said. Miles also added that the key issue for the BoE was judging the moment at which diminishing slack in the UK economy and increasing cost pressures warrant raising rates from their record low 0.5%. Investors are doubtful, however, that a rate lift will command majority support until early 2016.
Earlier this month BOE Governor Mark Carney said that he expected the question of when to begin raising rates "to come into sharper relief" at the turn of the year. In addition to that, Carney pointed out that investors should keep the headwinds facing the British economy in mind as the central bank approaches raising interest rates from a record low.
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.
UK Retail Sales and US Jobless Claims
The UK Retail Sales is a key event, as it accounts for the majority of overall economic activity. The Retail Sales report is also a high-impact event and should be considered as a market-mover. The forecast stands at 0.4%, up from 0.2% in May. The Retail Sales data mostly surprised with positive results since the beginning of 2015, suggesting there is a good chance the June's report will show more growth than anticipated. Later today, the Department of Labor is to release the number of people who applied for unemployment benefits. Although this is considered to be an event of high importance, it tends to have a minor impact on the US Dollar crosses. Nevertheless, a gradual improvement in the labour market would budge the Fed to raise interest rates as soon as possible, thus, the resulting speculation could boost the Greenback as well. Both reports are expected to show signs of improvement, but the UK Retail Sales are still likely to largely outweigh the US ones and boost the Cable higher.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 focused on reaching three-week high
On Wednesday, the GBP/USD behaved in accordance with expectations, as the pair managed to rebound from the 20 and 55-day SMAs. As anticipated, the immediate resistance was breached and the 1.56 major level retaken. Moreover, the Sterling is likely to extend the gains, unless the fundamental data disappoints. Today the nearest resistance is located around the 1.57 psychological level, which is also bolstered by the weekly R1 and the Bollinger band, while technical studies are supporting the possibility of another rally today.
Daily chart
The GBP/USD did rebound yesterday, but the better-than-expected US fundamentals pushed the Cable back down yesterday. Nevertheless, the 200-hour SMA kept providing support, as it caused the given pair to bounce back again and regain the bullish momentum. The Sterling has been appreciating against the US Dollar ever since, edging closer to yesterday's high and setting eye on the last weeks high at 1.5675.
Hourly chart
Bulls and bears edging closer to equilibrium
Bulls are barely outnumbering the bears, as only 51% of traders are long the Pound today. The share of purchase orders also plunged, from 55 to 48%.
Other market participants retain a bearish outlook towards the GBP/USD. The SAXO Group traders' sentiment remains unchanged for the third day, with 55% of their traders holding short positions. At the same time, OANDA's market sentiment improved further, as the share of long now takes up 55% of the market.
Spreads (avg, pip) / Trading volume / Volatility
19% of the poll participants expect the British Pound to cost between 1.60 and 1.62 dollars after a three-month period
According to the survey conducted between June 23 and July 23, 19% of traders assume the GBP/USD currency pair will cost between 1.60 and 1.62 dollars within three months. However, the second place is divided between two price intervals, 1.50-1.52 and 1.58-1.60, both selected by 12% of the surveyed. The mean forecast for October 23, on the other hand, is 1.5735.
This week, the Cable is seen to finish the week at around the 1.564 level, as the vast majority of survey participants are bullish on the currency pair. Currently, 77% of all polled traders are optimistic on the future of the pair, compared with 62.5% last week.
More than three quarters of traders expect the Sterling to outperform the American Dollar by the end of the week. One of the traders with a bullish perspective towards the Cable, iiivb, said that "GBP is playing as a safe-haven, while the Euro value is being repriced due to Greek bailout." Stix, on the other hand, holds a bearish view on the GBP/USD currency par. He assumes that the price is currently supported by a lot of average line supports; therefore, sideways movement is his estimation. "I see a slight bearish trend in this sideways movement", he mentioned.