- The portion of buy orders dropped down from 56 to 47%
- Bullish traders' sentiment remains unchanged at 53%
- 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 weekly R1 at 1.5366
- The nearest support rests at 1.5330, represented by the 200-day SMA
- Upcoming events today: UK MPC Votes, UK Official Bank Rate, UK Asset Purchase Facility, US Jobless Claims, US Import Prices, US Crude Oil Inventories
The British Pound experienced mixed performance over the day. Gains of 1.52%, 0.82% and 0.35% were registered versus the commodity currencies, namely the Kiwi, the Aussie and the Loonie, respectively. However, the Sterling also declined 0.53% against the Swissie, 0.36% against the Euro and 0.25% against the Greenback, while remaining relatively unchanged against the Yen, losing only 0.13%.
The fresh output and trade data added to signs of slowing momentum in economic growth in the UK. British manufacturing production declined sharply in July, hit by car plants' summer shutdown, while exports of goods fell the most in five years. The indicator decreased by a seasonally adjusted 0.8% in July, missing the estimates of a 0.2% growth and following a 0.2% increase in the previous month. The report also showed that industrial production fell by 0.4% in the seventh month of the year, confounding forecasts for a gain of 0.1%, after declining 0.4% in June. The weakness in manufacturing has increased Britain's dependence on its dominant services sector to power growth in the economy, complicating the challenge for the Bank of England as it ponders when to start raising interest rates.
The trade balance data also disappointed, as the goods trade deficit expanded to 11.1 billion pounds in July, widening above the estimated 9.5 billion and compared with 8.5 billion pounds deficit in the prior month. The largest decrease was in the export of chemicals, cars and works of art, while the import of machinery and transport equipment increased between June and July. After disappointing factory and services surveys last week, the latest data may push the MPC of the BoE into adopting a dovish tone on when to start raising borrowing costs from a record low.
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.
BoE's Official Rate, UK Asset Purchase Facility, MPC Rate Votes
The Bank of England's official rate decision is nigh. Even though the rates are expected to remain unchanged, there is still hope for the Sterling to receive a boost. The main trigger for the possible Pound appreciation will be the MPC members, voting for the interest rate hike. If more than one member decides that the time is right to hike interest rates, strong volatility to the upside is likely to occur and help the British currency to climb out of the two-week slumping pit it is currently in. However, if no changes in the monetary policy occur, the Pound is expected to remain muted, with focus shifting to the US fundamental slater today, namely the Jobless Claims and Import Prices. At this point, Jobless Claims will doubtfully have any effect with only a week left till the Fed's Rate Hike decision, while the poor Import Prices figures could help the Cable pierce the immediate resistance at 1.5366.
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 in limbo before BoE's decision
On Wednesday, the Cable turned around in front of 1.54 and even pierced the immediate support in face of the weekly R1. The Sterling is trading flat between the 200-day SMA and weekly R1, awaiting the BoE's rate decision today. The British Pound risks edging lower today, even though the MPC votes might still be somewhat bullish to the currency. Technical indicators shifted to distinctly bearish in the daily timeframe; however, they might not be as reliable today, due to different expectations of the MPC members. Nevertheless, we remain bullish the Sterling and expect it to climb over 1.54.
Daily chart
On the hourly the situation remains unchanged, as the pair keeps struggling to climb over the 1.54 major level, while also refusing to fall back under the July low. The primary target remains the last week's high, while the June low might also be reached, amid a dovish MPC statement today.
Hourly chart
Bulls keep growing stronger
Bullish traders' sentiment remains unchanged at 53%, whereas the portion of buy orders dropped down from 56 to 47%.
Other market participants also have a positive outlook towards the Sterling. For instance, 51% of OANDA's traders hold long positions (previously 52%), whereas among SAXO Group traders, sentiment remains bearish, with 53% 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 10 and September 10. The given interval was chosen by 15% of the poll participants each, whereas the second price ranges, both selected by 11% of the voters, imply that the Sterling will cost either between 1.46 and 1.48 dollars or between 1.58 and 1.60 dollars in three months. However, the mean forecast for December 10 is 1.5481.
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.