- The share of purchase orders increased to 54% (up from 36%)
- The gap between bulls and bears narrowed from 14 to 2% points
- Average three-month forecast is 1.5493
- Immediate resistance is at 1.5512 (55-day SMA)
- Dips to be limited by 1.5505/04
- Upcoming events today: UK Public Sector Net Borrowing, UK CBI Industrial Order Expectations, MPC Member Shafik Speech, US HPI, FOMC Member Lockhart Speech
The British currency appreciated against most major peers, with exception against the US Dollar, as the hawkish comments of several Fed members strengthened the Buck. The Sterling added the most versus the Euro (0.78%), the Aussie (0.74%) and the Kiwi (0.72%), while another commodity currency, namely the Loonie, was the most resilient and allowed the Pound to gain only 0.10% against it.
British retail sales, which account for 5.6% of the UK economy, rose in August, driven by sales of clothing, the Office for National Statistics reported. Retail sales volumes edged up 0.2% on the month to show an annual growth of 3.7%. Economists had expected retail sales to climb 0.2% and be up 3.8% compared with August last year. Clothing and footwear jumped 2.3% in August from July, the ONS said. The rise helped to offset drops at department stores and household-goods retailers. Food sales fell 0.9%. Core retail sales, which exclude auto fuel, increased a mere 0.1%. According to the Confederation of British Industries, retail sales picked up pace in August. The survey showed sales were supported by clothing and grocers' sales, following two months of stagnation, adding that sales volumes were expected to increase further in September.
Benign inflation and the strongest wage growth in more than six years put money in the pockets of consumers and helping them support the UK economy. Bank of England Governor Mark Carney told lawmakers that interest rates may need to rise from a record low in the new year if the economy continues to improve. Economists are still generally optimistic about the economy, as they forecast households are likely to feel wealthier and increase spending throughout the second half of the 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 Public Sector Net Borrowing and US HPI
Tuesday will not be as calm as Monday, with a rather significant event due, namely the UK Public Sector Net Borrowing. A positive number indicates a budget deficit and the forecast stands at 8.65£ billion, up from -2.069£. Furthermore, later today the US Housing Price Index is expected to improve. However, if the UK's Net Borrowing manages to rise and as high as anticipated, the Sterling should still outperform the Buck by day's end.
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 keeps testing 1.55
The GBP/USD currency pair was pushed back down upon reaching the 38.20% Fibo yesterday. Nonetheless, losses failed to drop below 1.55, as the remaining levels of the cluster provided sufficient support. There are no clear signs of a possible appreciation, although a correction could take place, unless the weekly and monthly PPs give in, which could cause the Cable to fall all the way to the 1.54 major level, also bolstered by the 20-day SMA. Meanwhile, the 55 and 100-day SMAs are now preventing the pair from remaining near its previous week's high.
Daily chart
The Sterling declined against the US Dollar for another day, edging closer to the 200-hour SMA. The SMA is expected to limit the losses and even cause the pair to bounce back, but with trade limited between 1.4670 and the 38.20% Fibo.
Hourly chart
Bulls prevailing over bears
The gap between bulls and bears narrowed from 14 to 2% points, while the share of purchase orders increased to 54% (up from 36%).
The sentiment at OANDA is shifting to the bearish side, as 53% of positions are short (46% yesterday). Bulls at SAXO Bank remain in a minority with 37%, unchanged since Monday.
Spreads (avg, pip) / Trading volume / Volatility
Average three-month forecast is 1.5493
Judging by the results of the poll among Dukascopy website visitors, traders do not seem to expect a lot of change in the Sterling-Dollar exchange rate during the next three months. The average forecast for GBP/USD is to trade at 1.5493 on Dec 22, but this does not fully reflect the structure of the votes. The most frequently chosen price interval is quite far from the mean value, it is 1.48-1.50 (16% of respondents), followed in popularity by 1.60-1.62 (14% of respondents).