- The share of buy orders dropped from 54 to 43%
- There are 56% of traders with a positive outlook towards the Cable today
- Average three-month forecast is 1.5485
- Immediate resistance is at 1.5382 (20-day SMA)
- Dips to be limited by 1.5350
- Upcoming events today: US Flash Manufacturing PMI, US Crude Oil Inventories, FOMC Member Lockhart Speech, MPC Member Broadbent Speech
The British Pound declined against other major currencies on Tuesday, due to a high budget deficit reading. The largest decline was registered against the Yen (1.34%), followed by a 0.99% and 0.82% loss versus the Greenback and the Loonie. The Sterling held most resilient versus the Aussie, dropping only 0.26% against it.
The UK manufacturing sector growth stalled for the first time in more than two years, with a stronger Pound and weak exports weighing on the sector's margins and volumes. The monthly total order book balance from the CBI's industrial trends survey decreased to -7 in September, compared with -1 in August. The CBI said the slowdown in China and the ongoing lacklustre growth in the Euro zone, the top destination for the UK-made goods, had forced companies to freeze production. Hence, expectations for output over the next three months were the weakest since October 2013. According to the latest official data, British manufacturing continued to face headwinds and suffered a weak performance in July as output in the sector dropped 0.8% month-on-month, compared with growth of 0.2% in June.
Slower factory output, combined with volatile exports and weaker retail sales over the summer period suggested a slowdown in the third-quarter GDP in the UK. Given the latest run of mixed fundamentals, the Bank of England consequently revised down its outlook for growth in the second half of this 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
Wednesday is a quiet day in terms of fundamental data from the UK, shifting all focus to the US Markit Manufacturing PMI. However, now changes in the PMI are expected, but a broadly stronger Dollar should still outperform the Pound.
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 to the lowest in a week
The Cable sustained heavy losses on Tuesday, amid poor readings of the UK Public Sector Net Borrowing. The pair fell beyond the anticipated level of 1.54, reaching the third support at 1.5350, namely the weekly S1 and 200-day SMA. However, the given support has little chance of preventing another fall today, allowing the Sterling to reach a fresh weekly low. Five significant levels form a really strong support cluster around 1.5180, but the exchange rate is not expected to drop that low today.
Daily chart
The GBP/USD currency pair finished forming a rounding top pattern, which is a bearish pattern, thus, suggesting to sell the Sterling. From this point on the Cable might continue suffering losses until it reaches the 23.60% Fibo, the last week's low.
Hourly chart
Bulls prevailing over bears
There are slightly more traders with a positive outlook towards the Cable today, namely 56% (previously 51%). The share of buy orders, on the other hand, dropped from 54 to 43%.
The sentiment at SAXO Bank remains on the bearish side, as 52% of positions are short (53% yesterday). Bulls at OANDA took over the majority of the market, with 52% of their positions being long.
Spreads (avg, pip) / Trading volume / Volatility
Average three-month forecast is 1.5485
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 1.5485 on Dec 23, 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 (15% of respondents), followed in popularity by 1.60-1.62 (14% of respondents).
This week traders' expectations changed insignificantly, with 64% of Dukascopy Community members being bullish. As a result, the advantage of bullish votes increased even more over the past five trading days. Market participants also see the pair higher by Friday of this week, with the mean forecast being placed at 1.556.
Jignesh remains long the Sterling for another week, as he believes the pair is bullish on a weak USD. However, "the pair is facing some resistance overhead in the form of a rising trend line which has yet to be broken", he added. On the bearish side, rokasltu, suggests that the Cable reached the 1.55 mark, but the outlook for the Sterling interest rate is unclear; therefore, he supposes the pair will gradually decline.