- The share of buy orders slid from 56 to 49%
- 52% of all positions are long today
- 17% 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 PP at 1.5520
- The nearest support rests at 1.5476, represented by the 100-day SMA
- Upcoming events today: FOMC Member Fischer and Lockhart Speeches, US Labor Market Conditions, UK BRC Retail Sales Monitor
The Sterling kept suffering losses even on Friday, after less than expected MPC members voted to hike interest rates. As a result, the British currency declined against the Kiwi and the Aussie, losing 1.10% and 0.89%, respectively. Nevertheless, the bullish momentum was preserved against the Swissie, adding 0.11%, and the Loonie, gaining 0.07%.
The British trade shortfall widened again in June as a strong Sterling continues to undermine exports of domestic companies. Nevertheless, trade still made a positive contribution to the UK economy in the second quarter overall. The trade gap came in at 1.6 billion pounds in the reported month, according to the Office for National Statistics. Total goods exports in June were 24.9 billion pounds, while goods imports increased to 34.1 billion pounds. Even though the deficit widened in June, its significant narrowing in April and May still allow for trade to have had a positive impact on economic output in the three months through June. British gross domestic product rose at a quarterly 0.7% between April and June, compared with a slower 0.4% in the first quarter.
The total trade deficit in the second quarter dropped to 4.812 billion pounds from 7.496 billion pounds, the smallest gap since the second quarter of 2011. Economists remained sceptical about whether the improvement would be long-lasting given the strength of Pound, which reached the highest level in more than seven years on a trade-weighted basis earlier this week. The Bank of England said earlier in the week Sterling's strength meant inflation would only climb slowly, pointing to a possible rise in interest rates early next year.
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 BRC Retail Sales Monitor, FOMC Member Fischer and Lockhart Speeches
Monday will be a rather quiet day in terms of fundamental events. From the UK side we only have the BRC Retail Sales Monitor, which measures the change in retail sales in BRC shops. It is not expected to have significant impact on the market prices, especially with more important events coming from the US side, namely FOMC Member Lockhart and Fischer Speeches. More insight concerning the US interest rate hike is expected to be provided in their speeches, thus, volatility is likely during that time. However, the labor market in the US still posted slightly worse-than-expected figures, although still was considered rather strong. As a result, the Greenback could weaken rather than strengthen against most major peers.
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 remains under the risk of falling
The 1.55 major level gave in last Friday, allowing the Cable to reach a fresh monthly low. Nevertheless, the GBP/USD currency pair still settled at 1.5490, namely the lower Bollinger band. The Sterling is expected to remain relatively unchanged on Monday, due to lack of substantial market movers; however, further weakness is possible if the Fed officials provide more insight on the interest rate hike. The nearest resistance rests at 1.5520, represented by the weekly PP; while the 100-day SMA and Bollinger band support the pair from below, attempting to limit the losses and cause a rebound.
Daily chart
Even though the Sterling sustained losses on Friday, the area around 1.5430 managed to push the currency pair back up, as the Pound was reluctant to move lower than a fresh one-month high. If the Cable manages to grow beyond the 1.55 psychological level today, further appreciation should become more stable until it reaches 1.56.
Hourly chart
Bulls barely prevailing over bears
Sentiment keeps drifting near equilibrium, as 52% of all positions are long today. Meanwhile, the share of buy orders slid from 56 to 49%.
Other market participants now have a different outlooks towards the GBP/USD. The SAXO Group traders' sentiment shifted to the bullish side, as 53% of all their positions are now long (previously 44%). At the same time, OANDA's market sentiment remains in a perfect equilibrium today.
Spreads (avg, pip) / Trading volume / Volatility
17% 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 July 10 and August 10, 17% 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 16% of the surveyed. The mean forecast for November 10, on the other hand, is 1.572.