- The share of buy orders slid from 52 to 49%
- Bulls take up 56% of the market
- 13% of the poll participants expect the British Pound to cost either between 1.48 and 1.50 dollars or between 1.58 and 1.60 dollars after a three-month period
- Immediate resistance lies in face of the 200-day SMA around 1.5326
- The nearest support rests around 1.5230, represented by the Bollinger band and weekly S1
- Upcoming events today: UK Services PMI, US Trade Balance, US Jobless Claims, US ISM Non-Manufacturing PMI, US Natural Gas Storage
The Sterling experienced mixed performance over Wednesday, but mostly remaining strong against other major currencies. Gains of 1.06%, 0.78% and 0.76% were detected versus the Swissie, the Yen and the Euro, respectively, while the Pound declined against other eastern currencies, such as the Kiwi (-0.78%) and the Aussie (-0.48%). However, the British currency remained relatively unchanged versus the Buck and versus the Loonie, adding 0.03% and 0.12%, respectively.
The UK construction sector picked up slightly in August, the latest PMI reading for the given sector showed on Wednesday. The gauge came in 57.3 points, missing the median estimate of 57.5. However, construction PMI still stayed firmly above the contraction line and higher than July's print of 57.1 points. The largest upward pressure on the monthly growth came from a sharp rebound in private housing projects, which was accompanied by massive demand for new houses. Growth of commercial work also accelerated in the eight month of the year, reaching its strongest since March. Moreover, the latest credit data published by the Bank of England revealed the number of mortgage approvals had increased in July to their highest level since February 2014.
Meanwhile, lower oil-related prices contributed to the weakest rate of input cost inflation since April. Looking ahead, market participants will now be closely watching the services PMI release due on Thursday. The sector activity is expected to rise to 57.7 points, up from 57.4 in the previous month. Overall, the UK economy should stride forward rather confidently, pushed by a robust services sector output and domestic consumption. A secured and reformed banking sector, as well as easy monetary policy, adds to the stability outlook.
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 Services PMI, US Non-Manufacturing PMI and US Trade Balance
The UK Services PMI is an indicator, showing the economic situation In the UK's services sector. It captures an overview of the condition of sales and employment; however, the given PMI is not as important as the Manufacturing one. According to the forecast, the improvement is expected to be insignificant, thus, the US fundamentals are more likely to influence the Cable today. The US Trade Balance, a balance between exports and imports of goods and services, is expected to narrow slightly, while the ISM Non-Manufacturing PMI is likely to post weaker data, compared to the previous release. With rather mixed data and a weaker labor market, the Greenback might suffer some losses today and give room for the Sterling's appreciation.
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 risks falling under 1.53
The Cable maintained trade in the tight range between the Bollinger band and 200-day SMA, remaining relatively unchanged over the day. However, the Bollinger band shifted more to the downside today, now located at 1.5238, near the weekly S1. As a result, the trading range widened, and the 200-day SMA can push the Sterling lower towards the new support cluster around 1.5230. The possibility of the GBP/USD regaining its bullish momentum persists, as the 1.53 major level might cause a rebound and with the help of the fundamental data force the pair to pierce the 200-day SMA.
Daily chart
On the hourly chart the situation remains unchanged, as the Cable edges closer to the triangle's pattern end. A break to the upside is still in play if the GBP/USD does not fall too deep over Thursday, while chances are of the resistance trend-line being broken even today.
Hourly chart
Bulls keep growing stronger
SWFX traders' sentiment remains unchanged, with bulls taking up 56% of the market. The share of buy orders slid from 52 to 49%.
Other market participants also have a positive outlook towards the Sterling. For instance, 53% of OANDA's traders hold long positions, whereas among SAXO Group traders, 57% of all positions remain long.
Spreads (avg, pip) / Trading volume / Volatility
13% of the poll participants expect the British Pound to cost either between 1.48 and 1.50 dollars or between 1.58 and 1.60 dollars after a three-month period
The 1.48-1.50 and 1.58-1.60 price intervals are now the most popular choices among all of the votes, collected between August 3 and September 3. The given intervals were chosen by 13% of the poll participants each, whereas the second price range, selected by 11% of the voters, implies that the Sterling will cost between 1.50 and 1.52 dollars in three months. However, the mean forecast for December 3 is 1.5661.
The share of bullish votes has almost halved this week, compared to the previous five-day period. At the moment only 43% of them are going long on the Sterling, while the majority of Dukascopy traders expect to see GBP/USD lower by Sep 4. The average estimate is in turn placed precisely at the 1.5450 mark.
RacerX, a member of the Dukascopy Community, has a positive outlook towards the Sterling. "I believe that it will beat the Buck in the interest rate hike race", he explained. He also believes that the data from the UK suggests that inflation is going exactly towards the target and is strong enough to support a rate hike. Being on the bearish side of the barricade, aslamhammad anticipates the British Pound to decline against the Greenback, as "the price has found a resistance around 1.58 and is in a rising wedge formation." Aslamhammad also believes that the Non-Farm Employment Change data on Friday September 4 is to boost the US Dollar and therefore outperform the Sterling.