- The number of buy orders declined from 65 to 48%
- The share of bulls returned to the last Monday's level of 60%
- Average three-month forecast is 1.5463
- Immediate resistance is at 1.5180 (weekly PP and 23.60% Fibo)
- Dips to be limited at 1.5111
- Upcoming events today: UK Housing Equity Withdrawal, US Trade Balance, FOMC Member Williams Speech
The Sterling declined against most major peers, amid a weaker-than-anticipated Services PMI reading yesterday. With oil prices rising, the Pound suffered the most versus the commodity currencies, such as the Kiwi, the Aussie and the Loonie, losing 1.09%, 0.90% and 0.70%, respectively. Gains, however, were registered against the Yen (0.18%) and the Swissie (0.15%), while the British currency also remained relatively unchanged against the Euro, adding only 0.04%.
The UK service sector's business activity experienced a further decline at the end of the third quarter, and, hence, reached its lowest rate in almost two and a half years. The most recent services sector Purchasing Managers Index dropped from August's 55.6 points to 53.3 points in September. Even though the figure is above the threshold of 50 points, which implies growth, it was nevertheless the lowest number since April 2013. This trend could be caused by increasing uncertainty across the globe, along with weak British manufacturing activity.
Meanwhile, the survey also indicated that shoppers in the UK were believed to be more cautious and, therefore, reduced their expenditures on hotels and restaurants. The official data in the previous week demonstrated the services sector, which makes up 78% of the country's total economy, weakened again during the summer, just after it advanced in the second quarter from a slowdown witnessed in the beginning of 2015. The recent numbers may unsettle both Chancellor George Osborne, who is due to address the annual conference of his Conservative Party on Monday, and the Bank of England as its Monetary Policy Committee meets to discuss interest rates ahead in the week.
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 Trade Balance
With the UK Halifax HPI declining slightly more than expected, the only relevant event to influence the Cable remains the US Trade Balance. The Trade Balance released by the Bureau of Economic Analysis and the U.S. Census Bureau is a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the USD. If a steady demand in exchange for US exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the USD. However, the deficit is forecasted to increase, thus, pressuring the US Dollar.
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 anchored around 1.5150
Although the Sterling tested the immediate resistance in face of the weekly R1, the worse-than-expected UK Services PMI reading pushed the GBP/USD back under the 23.60% Fibo. The Cable once again has the Fibonacci retracement on its path, which not only kept the pair from appreciating during the previous week, but is now also bolstered by the weekly PP. Immediate support, on the other hand, rests at 1.5111, namely the weekly S1; this area could prevent the Pound from falling deeper against the stronger on risk appetite US Dollar.
Daily chart
The Cable failed to remain above the 1.52 level yesterday, ultimately returning to the previous week's trading levels. The 23.60% Fibo is now reinforced by the 200-hour SMA and is unlikely to let the Sterling rise higher. However, the fundamental data could provide the Pound with a sufficient boost to settle above the immediate resistance.
Hourly chart
Bulls prevailing over bears
The share of bulls returned to the last Monday's level of 60% (down from 64%). The number of buy orders also declined, from 65 to 48%.
The sentiment at SAXO Bank remains bullish, as 58% of their traders are long the Sterling. Bulls at OANDA also remain in the majority of the market, with 66% of their positions being long (previously 67%).
Spreads (avg, pip) / Trading volume / Volatility
Average three-month forecast is 1.5463
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 1.5451 on Jan 6, but this does not fully reflect the structure of the votes. The most frequently chosen price interval is quite far from the mean value, that is the 1.60-1.62 price range, selected by 17% of respondents each, followed in popularity by 1.48-1.50 (13% of respondents).