GBP/USD seeks support at two-week low

Source: Dukascopy Bank SA
  • The portion of buy commands slid from 54 to 47%
  • Only 54% of positions are long today
  • 20% 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 1.5582
  • The nearest support rests at 1.5559, represented by the monthly PP
  • Upcoming events today: UK Services PMI, US ADP Non-Farm Employment Change, US Trade Balance, US Final Services PMI, US ISM Non-Manufacturing PMI, US Crude Oil Inventories

© Dukascopy Bank SA

The British currency experienced mixed performance over Tuesday. A substantial loss of 1.51% was recorded against the Aussie, following with an only 0.15% decline versus the Greenback. The Pound gained the most against the Swissie (0.77%) and the Euro (0.46%), while remaining relatively unchanged against the Yen (0.12%) and the Loonie (0.11%).

Growth in the UK construction industry unexpectedly slowed in July, hurt by sluggish housebuilding and civil engineering. The Markit/CIPS UK construction PMI declined to 57.1 after reaching 58.1 in June, the highest level in four months. Construction data showed housebuilding activity rose at the slowest pace since April, marking one of the weakest growth rates since mid-2013 and underlining the challenge that policy makers face in dealing with the UK's chronic housing shortage. Lack of new housing and sharply increasing demand due to historically low rates continue to push house prices upward. According to the BoE's latest credit report, the number of secured loans for house purchases approved in June surged to 66,582, compared with an upwardly revised 64,826 loans approved in May, while the volume of mortgages was the highest since 2008. The government last month announced a plan to remove obstacles to building new houses.

The UK's overall economic performance improved in the second quarter as GDP rose to 0.7% between April and June, up from 0.4% in the beginning of the year. The increase in services sector output was the main upward drivers. Significant support also came from a highly volatile oil and gas output from the North Sea, surging the most since 1989.

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.


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UK Services PMI, US ADP Non-Farm Employment Change, US ISM Non-Manufacturing PMI and US Trade Balance



The UK Services PMI showed improvements in June's release, but the data over July is expected to deteriorate; however, the change is expected to be insignificant. Furthermore, several important data releases from the US are scheduled for today, which are more likely to influence the given currency pair. First of all, the ADP Non-Farm Employment Change, which accounts for the majority of overall economic activity, is forecasted to worsen. The strong employment market together with other strong data would bring back confidence in the solid US economic growth, backing the September interest rate hike view. Although the forecast stands at 215,000 jobs, down from 237,000, the ISM Non-Manufacturing PMI is expected to improve, but slightly. Furthermore, the Non-Manufacturing PMI was declining for the past two months and the tables are unlikely to turn just yet. Finally, the US Trade Balance, which is to have a lesser impact on the American Dollar, namely the GBP/USD currency pair, as last week the Goods Trade Balance was released, which provided insight on the Trade Balance. According to the Goods Trade Balance, the overall US Balance is likely to exceed the expectations to the downside, putting more pressure on the Greenback.


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 seeks support at two-week low

The Cable was unable to retake the 1.56 major level on Tuesday, as it slumped under the trend-line, amid US official supporting Sept. rate hike. The bullish trend risks coming to an end if the GBP/USD currency pair fails to appreciate today and settled above the trend-line again. Although the Sterling continued to decline in the early hours today, the tide could still turn, as either the monthly PP or the strong support cluster around 1.5505 might cause a rebound. Nevertheless, gains are still likely to be limited by the weekly PP if they occur, even though technical studies retain their mixed signals.

Daily chart

© Dukascopy Bank SA

The 200-hour SMA gave in near the end of the day, which allowed the Cable to reach a fresh six-day low today. Nonetheless, the tide appeared to have changed, as the Cable began to crawl out of the pit towards the 200-hour SMA again. The major market movers remain the US fundamentals today, according to which, the Pound should retake the 1.56 level.

Hourly chart

© Dukascopy Bank SA



Bulls now prevailing over bears

Traders lost some confidence in the Pound, as only 54% of positions are long. The portion of buy commands also slid, from 54 to 47%.

Other market participants now have a different outlooks towards the GBP/USD. The SAXO Group traders' sentiment remains bearish, as 58% of all their positions are now short (previously 60%). At the same time, OANDA's market sentiment slightly worsened, with 53% of their traders being short the Sterling.














Spreads (avg, pip) / Trading volume / Volatility



20% of the poll participants expect the British Pound to cost between 1.60 and 1.62 dollars after a three-month period

© Dukascopy Bank SA

According to the survey conducted between July 05 and August 05, 20% of traders assume the GBP/USD currency pair will cost between 1.60 and 1.62 dollars within three months. However, the second place now taken by the 1.58-1.60 price intervals, selected by 19% of the surveyed. The mean forecast for November 05, on the other hand, is 1.58.


Following hopeful development of the pair during July 27-31 week, participants of our weekly Community Forecasts quiz decided to become much more bullish on the Cable, as currently only 30% of them support movement to the south.

Kanbarsky, one of the Dukascopy Community members, has a bullish outlook towards the Sterling this week. He said that "the GBP is on a bearish long-term trend, but on the short-term until Friday, it is in a correction up and might reach the above targets." However, some traders, like iiivb, retain their bearish perspective towards the Cable. He expects Yellen's comments to accelerate a bullish USD sentiment across the board. "At a slower pace Cable should follow Euro prices, although, Cable must clearly break below 1.55 price to accelerate a bearish direction" – he mentioned.

© Dukascopy Bank SA

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