- Share of sell orders plunged from 68 to 48%
- 52% of open positions are long and 48% are short
- 16% of the poll participants expect the British Pound to cost between 1.48 and 1.50 dollars after a three-month period
- Nearest support is at 1.5450
- Closest resistance is the latest high at 1.5475
- Upcoming events on Tuesday: UK CPI (Aug), US Retail Sales (Aug), US Core Retail Sales (Aug)
While the British Pound gained 0.15% against both the Japanese Yen and the Canadian Dollar, the UK currency stayed relatively unchanged relative to the US Dollar and underperformed with respect to the rest of the major currencies. The largest losses were recorded against the Euro, namely 0.48%, followed by a 0.40% depreciation versus the Swiss Franc.
British construction output unexpectedly fell in July, reversing a bounce in the previous month. The gauge posted a 1% decline, missing the estimate of the 0.5% pickup after an unrevised 0.9% rise in June. On an annual basis, the output dropped by 0.7%, compared with forecasts of the 0.6% rise. A major driver of the decline was a year-on-year fall in the amount of new housing being built, which decreased by 2.5%. At the same time, construction of public housing plunged by a hefty 15.6%, while the 0.8% growth in private construction was the slowest since March 2013 as well. However, the ONS did not revise the 0.2% growth rate it recorded for the sector in the second quarter, saying it would wait until more comprehensive annual statistical revisions for Britain's official data later this month.
Meanwhile, Kristin Forbes, a member of the MPC, warned in her Friday's speech that the BoE may have to increase its interest rate sooner than expected in order to fend off inflation. She also added that the movements in Sterling's exchange rate have been a key factor allowing the MPC to keep interest on hold, even though the domestic economy showed signs of solid recovery.
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 pressure the Cable to slide to 1.54. Meanwhile, the analyst considers that "over the next three months the 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.
Do not let yourself be lulled by quiet Monday
While Monday is eventless for GBP/USD, tomorrow we expect a key statistic for the monetary policy and therefore also for the Pound. Office for National Statistics is expected to show no change in the price level in August after slowest possible inflation of 0.1% a month earlier. Later on the focus will shift to the US data, which will show the dynamics in the retail sector of the world's largest economy. The consensus is slower growth in August (0.4%) after 0.6% reported in July.
Ross Walker, economist at Royal Bank of Scotland Group, suspects that GBP/USD may descend to 1.50 by around the middle of 2015, and 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's bullish momentum strained by 1.5450
GBP/USD continues to struggle to resume recovery. More concerns are added because of the technical indicators. While most of the weekly studies are still pointing to the upside, on the daily and monthly time-frames they are suggesting a sell-off. The Sterling is likely to extend the rally to 1.55 dollars, and a move past this milestone is improbable, considering the monthly PP and moving averages that lie overhead. The target will then be a significant support area at 1.5330 (July low and 200-day SMA).
Daily chart
The near-term bullish outlook is confirmed in the hourly chart, as the currency pair keeps respecting the newly established rising trend-line. Support is therefore at 1.5450, while the closest challenge is the latest high at 1.5475.
Hourly chart
SWFX market remains neutral
The SWFX sentiment did not experience any changes. Just as on Friday, 52% of open positions are long and 48% are short. But at the same time the share of sell orders plunged from 68 to 48%.
Preponderance of bulls within OANDA is a little more pronounced, being that 56% of positions are long. In contrast, SAXO Bank clients are mostly bearish towards the Pound: 55% of positions are 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 11 and September 11. The given interval was chosen by 16% of the poll participants each, whereas the second price ranges, all five selected by 10% of the voters, imply that the Sterling will cost either between 1.46 and 1.48 dollars or somewhere between 1.54 and 1.62 dollars in three months. However, the mean forecast for December 11 is 1.548.