- Purchase orders take up 61% of the market
- 59% of traders are now long the Sterling
- Average three-month forecast is 1.5471
- Immediate resistance is around 1.5350 (20 and 200-day SMAs and weekly S1)
- Dips to be limited by 1.5180
- Upcoming events today: US Durable and Core Durable Goods Orders, US Jobless Claims, US New Home Sales, Fed Chair Yellen Speech
The Sterling remained under pressure for another day, declining against most major peers. The Pound suffered the most versus the Euro, losing 1.28%, following with a 0.78% and 0.68% declines versus the Greenback and the Yen. However, the British currency also managed to appreciate versus the Aussie, adding 0.44%.
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.
US Core Durable Goods Orders and Fed Yellen's Speech
With a rather large number of data releases from the US scheduled for Today, the most important one is probably the Core Durable Goods Orders. This is the cost of orders received by manufacturers for durable goods, which means goods planned to last for three or more years, with exception of the transport sector. The given orders usually involve large investments and, thus, are sensitive to the US economic situation. According to the forecast, the share of the orders is expected to decline significantly, but a better-than-anticipated figure could still boost the US Dollar against major peers. The second even to pay attention to is Yellen's Speech at 21:00 PM GMT. Information about the interest rate hike is expected to be revealed, with any delay for a hike after 2015 is likely to weaken the US currency.
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 attempts to rebound
GBP/USD currency pair behaved according to the forecast, as it pierced the immediate support, but failed to reach the tough cluster around 1.5180. The Cable is expected to rebound today, amid an anticipated dovish statement from the Fed's Chair and a decline in Core Durable Goods Orders. The cluster around 1.5350 is now providing resistance, while the pair remains supported by a group of levels just under the 1.52 major level, which altogether should limit any downside volatility if such occurs.
Daily chart
On the hourly chart, the GBP/USD suffered more losses after completing the rounding top pattern, as was anticipated. However, the exchange rate did not drop to the 23.60% Fibo at 1.5185, as the Cable began rebounding from 1.5220.
Hourly chart
Bulls prevailing over bears
Both net orders and net positions improved over the day, as 59% of traders are now long the Sterling (previously 56%) and purchase orders take up 61% of the market, up from 43% yesterday.
The sentiment at SAXO Bank remains on the bearish side and unchanged, as 52% of positions are short. Bulls at OANDA keep gaining numbers, with 60% of all positions being long.
Spreads (avg, pip) / Trading volume / Volatility
Average three-month forecast is 1.5471
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 1.5471 on Dec 24, but this does not fully reflect the structure of the votes. The most frequently chosen price intervals are quite far from the mean value, those are the 1.48-1.50 and 1.60-1.62, both selected by 16% of respondents, followed in popularity by 1.56-1.58 (12% 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.