- Purchase orders now take up 41% of the market
- Bullish traders' sentiment returned to its Thursday's level of 51%
- 21% 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 20 and 55-day SMAs around 1.5540
- The nearest support rests around 1.5435, represented by the weekly S1
- Upcoming events today: UK CBI Industrial Order Expectations, US Durable and Core Durable Goods Orders
The British Pound appreciated against most major peers over the weekend, with exception against the Yen. The largest gains were recorded against the Aussie (1.17%) and the Kiwi (0.61%), whereas the Sterling lost 0.07% versus the Yen. Furthermore, the UK currency remained relatively unchanged versus the US Dollar, adding 0.02% over the weekend.
UK retail sales saw an unexpected decline in June amid decrease in sales of food, other household goods, and other goods. The retail sales saw a 0.2% decline for the reported period compared to 0.4% increase expected by economists, which is the first time sales growth has contracted since March this year. However, in the quarter ending in June, sales growth rose 0.7%, the 28th straight quarterly increase. Moreover, amount of money spent in the retail industry in June surged by 0.9% compared with the same period in 2014, while declined 0.1% compared to May 2015. Decline was caused, as spending by British consumers on furniture and appliances dropped 0.9%, while on food by 0.3%.
Despite the disappointing June figures, the outlook by investors and economists remains positive due to appreciating Sterling, low inflation rate, and falling oil prices. These factors will boost disposable income for consumers to spend on goods, thus further underpinning economic growth and recovery. Nonetheless, growth of retail sales will play a key role in the BoE's decision on when to hike interest rates. Last week, the central bank's governor Marc Carney hinted a possible rate hike by the end of 2015. However, the timeline for this important decision could be impacted by further disappointing sales growth figures in the following months.
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 Core Durable Goods Orders
The US Durable and Core Durable Goods Orders are the two main events for today. They are to be released simultaneously at 12:30 PM GMT and both are expected to show signs of growth. The Core Durable Goods Orders is a leading indicator of production, as the rising number of orders causes the manufacturing activity to rise as well. Even if the data manages to meet expectations or even exceed them, gains are unlikely to push the Sterling too far down, as tomorrows UK Preliminary GDP is likely to turn the tables around.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 to fall under 1.55; risks dropping to two-week low
Even though the GBP/USD currency pair reached the immediate support on Friday, trade still managed to close above the 1.55 major level. The 20 and 55-day SMAs keep providing substantial resistance around 1.5540 today, which should cause the Cable to edge lower again, despite the attempts to regain the bullish momentum over the weekend. The closest support is still represented by the weekly S1, now at 1.5435; although the Sterling is expected to fall under 1.55, the weekly S1 is unlikely to be reached.
Daily chart
Even though the Cable managed to rebound from 1.5470 last Friday, the regained bullish momentum was merely a setback. The Sterling attempted to rise higher early Monday, but was pushed back down to 1.55 afterwards. The psychological level is expected to be pierced, while the two-week low, namely 1.5450 area, remains the next target.
Hourly chart
Bulls barely prevailing over bears
Bullish traders' sentiment returned to its Thursday's level of 51%. The number of orders to acquire the British currency declined nine percentage points. The orders now take up 41% of the market.
Other market participants retain a bearish outlook towards the GBP/USD. The SAXO Group traders' sentiment broke out of the equilibrium, with 52% of all positions now long. At the same time, OANDA's market sentiment slightly worsened, as its long and short position ratio is equal to one.
Spreads (avg, pip) / Trading volume / Volatility
21% 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 27 and July 27, 21% 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, 1.52-1.54 and 1.58-1.60, both selected by 13% of the surveyed. The mean forecast for October 27, on the other hand, is 1.5692.