- The portion of purchase orders edged up from 44 to 56%
- Only 53% of all positions are now long
- 15% of the poll participants expect the British Pound to cost between 1.48 and 1.50 dollars after a three-month period
- Immediate resistance lies in face of the 20-day SMA around 1.5458
- The nearest support rests at 1.5366, represented by the weekly R1
- Upcoming events today: UK Manufacturing Production, UK Trade Balance, UK NIESR GDP Estimate, US JOLTS Job Openings,
The Sterling appreciated against most major peers, with exception against the commodity currencies, such as the Aussie and the Kiwi. The Pound lost 0.88% and 0.48% versus the NZ Dollar and the Australian Dollar, due to a rebound in risk appetite. Nevertheless, the largest gains were recorded versus the Yen (1.36%) and the Swiss Franc (1.01%), while remaining relatively unchanged versus the Loonie, adding only 0.05%, as the Canadian currency remained strong amid higher oil prices.
Growth in the UK services sector, the key pillar of the British economy as it accounts for around 78% of the nation's economic output, unexpectedly slowed in August. Markit's services PMI declined to 55.6 down from 57.4 in July, hitting the lowest level in more than two years. The gauge of new business in the services industry plunged to 56.2 in August, the lowest since April 2013, from 58.6 in July. The data also revealed business expectations among service companies at the lowest since February, while input-price inflation slowed for a third straight month to the weakest since January.
The recent manufacturing and construction data suggest the pace of economic growth is set to slow to 0.5% this quarter, from 0.7% in the three months through June. However, the Bank of England predicts a growth rate of 0.7% in both the second and third quarters. Meanwhile, NIESR said in its latest outlook that it expected UK GDP to slow down in the third quarter, but growth would remain 2.5% this year. The CBI revised up its outlook for the British economy to an increase of 2.6% this year, before accelerating further to 2.8% in 2016, driven primarily by rising business investments and productivity, as well as strong domestic demand.
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 Manufacturing Production, NIESR GDP Estimate and US JOLTS Job Openings
The week finally got more interesting with the appearance of some potential market movers. One of such events today is the UK Manufacturing Production, released by the National Statistics. It measures the manufacturing output and is a significant short-term indicator of the strength of UK manufacturing activity, which accounts for a large part of the GDP. Even though it is expected to remain unchanged, a shift in any direction is likely to have the same effect on the Sterling. The next important even is the NIESR GDP Estimate, which shows approximate UK's growth over the last three months and provides the first insight before the official announcement. Last, but not least is the US JOLTS Job Openings report, with the forecast of 5.30 million, up from 5.25 million. This event might influence the market as it is a leading indicator of overall employment, thus, should be considered as a possible market mover.
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 sets eye on 1.55
The Sterling recovered from the July low yesterday and not only pierced the 200-day SMA, but also the second resistance level in face of the weekly R1. Gains, however, were limited by the 1.54 major level, which might cause the Cable to retrace its previous steps. Nevertheless, the weekly R1 is to attempt and hold the pair from declining and cause another rally towards the strong resistance cluster just above the psychological level of 1.55, which is the ceiling the Pound could hit before the MPC votes tomorrow. Technical studies, on the other hand, are still giving bearish signals.
Daily chart
Although the Cable breached the 200-hour SMA, the target level of 1.5436 was not reached, as the GBP/USD currency pair struggled to climb over the 1.54 major level. The given area is still providing resistance and preventing the pair from appreciating, while the Sterling is not eager to return to the July low either.
Hourly chart
Bulls keep growing stronger
Bulls keep retreating, as only 53% of all positions are now long. The portion of purchase orders, however, edged up from 44 to 56%.
Other market participants also have a positive outlook towards the Sterling. For instance, 52% of OANDA's traders hold long positions (previously 60%), whereas among SAXO Group traders, traders shifted to the bearish side, with 54% of all positions being short..
Spreads (avg, pip) / Trading volume / Volatility
15% of the poll participants expect the British Pound to cost between 1.48 and 1.50 dollars after a three-month period
The 1.48-1.50 price interval is now the most popular choice among all of the votes, collected between August 9 and September 9. The given interval was chosen by 15% of the poll participants each, whereas the second price range, selected by 13% of the voters, implies that the Sterling will cost between 1.58 and 1.60 dollars in three months. However, the mean forecast for December 9 is 1.5386.
Dukascopy traders, in turn, became more undecided on future perspectives of this pair's movement, as bullish and bearish votes are almost equally divided at the moment.
A trader with the bullish outlook towards the Sterling, WallStreet6, assumes that "after nine days of depreciation we can expect a retracement and we can move back above 1.54." WallStreet6 also believes that interest rates will stay at the current level, but in his view it might still be supportive for the Cable. On the bearish side we have Khalidamassi, another member of the Dukascopy Community. He expects the Pound to fall by week's end, as the GBP/USD remains under pressure, last week it continued falling below 1.52 and now next critical point will be around 1.50. He believes there is no sign of recovery at this time.