- The share of buy commands worsened from 54 to 49%
- The percentage of bulls dropped to the lowest (57%) in October
- 30% of traders believe the British Pound will cost more than 1.60 dollars after a three-month period
- Immediate resistance is at 1.5379 (weekly R3)
- The nearest support lies around 1.53, namely the weekly R2, monthly PP, 20 and 200-day SMAs
- Upcoming events today: UK Trade Balance, US Import and Export Prices, FOMC Member Lockhart and Evans Speeches, US Wholesale Inventories
The British Pound suffered losses against most major peers, with the largest ones recorded against the commodity currencies. The Sterling lost 0.66% against the Kiwi, 0.52% versus the Aussie and also 0.59% against the Swissie. Against the Loonie, however, the Pound dropped only 0.11%, while posting a rather small decline against the Euro as well (0.15%). Gains, on the other hand, were registered versus the Greenback and the Yen, adding 0.19% and 0.13%, respectively.
The Monetary Policy Committee of the BoE voted 8-1 to keep rates at a record-low 0.5% in October, with Ian McCafferty maintaining his call for an increase. The MPC minutes also revealed a relatively soft central bank's outlook for inflation in the UK, suggesting that the rate hike would be postponed at least to the next year. The BoE said that cost pressures in Britain's labour market were rising too slowly for inflation to return to its 2% target, especially given the past strength of the Sterling. However, even though, the inflation fell back to zero in August in the UK, the policymakers are confident that robust domestic growth and the fading effect of last year's slump in oil prices would cause it to bounce back towards its projected target next year. Overall, the BoE forecasted that inflation would stay below 1% until spring 2016.
Meanwhile, The MPC made its decision amid mounting signs that British economy is starting to lose momentum after 10 consecutive quarters of solid expansion. The recent official report showed services in the UK grew at the weakest pace in more than two years, underscoring the case for keeping rates unchanged. According to the minutes, the BoE officials project the GDP to expand 0.6% in the third quarter of 2015.
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 Trade Balance, US Import and Export Prices
The UK Trade Balance is due today, which creates a significant impact on occasion. Usually markets barely react to its data; and due to a relatively unchanged figures expected today, the Sterling-crosses are also likely to ignore it (unless the data surprises). From the US side, the data on the prices of imported and exported goods into the US is to be released later today. Both are forecasted to improve, while several FOMC members are also scheduled to speak today, perhaps, providing more insight on yesterday's Meeting Minutes and the future interest rate hike outlook.
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 takes another crack at weekly R3
The Sterling appreciated against the US Dollar for the third consecutive day yesterday, while testing both the immediate support and the second closest resistance. The rally was not as strong as expected, but the Pound has a chance of reaching the 1.54 major level today. An obstacle, however, lies on the Cable's path in face of the weekly R3 at 1.5379, which could hold the gains. The GBP/USD is now supported by a tough cluster around 1.53, limiting any possible dips. Meanwhile, technical studies also suggest the pair is stuck between 1.53 and 1.54.
Daily chart
The Cable is now trading in a rather sharply rising wedge pattern, making attempts to pierce the resistance trend-line. A breach of the lower border would not be a surprise, but the Pound refuses to give up its bullish momentum, for now at least.
Hourly chart
Bulls prevailing over bears
The percentage of bulls dropped to the lowest (57%) in October, while the share of buy commands also worsened, from 54 to 49%.
The sentiment of other market participants also remains bullish. OANDA has 58% of traders holding long positions. However, 54% of traders at SAXO Group now have a negative outlook towards the Cable, compared to 51% yesterday.
Spreads (avg, pip) / Trading volume / Volatility
30% of traders believe the British Pound will cost more than 1.60 dollars after a three-month period
According to the survey, conducted between Sep 9 and Oct 9, the Sterling is expected to cost 1.5564 dollars in three months. The 1.60-1.62 price interval received the largest number of votes, namely 16%, followed in popularity by the 1.58-1.60 interval, selected by only 14% of the voters. However, the overall majority (54%) believes that the Pound will still rise above the 1.56 major level by January 9.
Dukascopy Community members are betting on a bullish scenario, as they expect the price to hit 1.5342 by this Friday. Moreover, 66% of respondents are bullish on the pair.
One of the traders with a positive outlook towards the Cable, namely morev180, suggested that "the formation of the correction of senior level within wave B of (2), which took the form of an irregular plane with developing the final wave c of B. Locally, most likely, formation of the final fifth wave (v) of c of B. If the assumption is true, within the near future is logical to expect the formation of a price reversal and the beginning of growth in the wave with of (2)." Meanwhile, a Dukascopy Community member who believes the Sterling will fail to outperform the Buck said that the Cable has dipped below last week's low of 1.5135 and is coming up on some support at 1.5085. "That if broken, will bring a move below 1.50 on down to the low of 1.4800's. I am inclined to believe now that the Fed will announce an interest rate hike before the BoE", he commented on his bearish view.