- 57% of orders are to buy the GBP
- More than a half (61%) of traders retain a positive outlook towards the Cable
- 28% of traders believe the British Pound will cost more than 1.60 dollars after a three-month period
- Immediate resistance is at 1.5420 (weekly R1 and 55-day SMA)
- The nearest support lies around 1.53
- Upcoming events today: UK CPI, RPI, HPI and PPI, BoE Credit Conditions Survey, MPC Members Vlieghe and McCafferty Speeches, US Federal Budget Balance
The British currency experienced mixed performance on Monday, as it appreciated against some major peers and declined against the others. The Sterling sustained losses against some commodity currencies, such as the Aussie and the Kiwi, losing 0.20% and 0.25%, respectively. However, the Pound managed to gain 0.57% versus the Loonie, while remaining relatively unchanged against the Japanese Yen (-0.02%).
The UK recorded a larger-than-expected trade deficit in August, while construction output dropped at the fastest pace since 2012, suggesting the British economy is losing momentum. The nation's trade shortfall came in at 11.1 billion pounds, compared with an upwardly revised 12.2 billion pounds a month earlier, according to the Office for National Statistics. Economists, however, had predicted a narrowing to 9.9 billion pounds. The UK's deficit on trade in goods and services dropped from 4.5 billion pounds in July to 3.3 billion pounds in August, while exports of goods increased by 0.8 billion pounds to 23.6 billion pounds, driven higher by a 0.6 billion pounds increase in car exports to a record 2.4 billion pounds. Meanwhile, imports declined 0.3 billion pounds to 34.7 billion pounds over the same period.
At the same time, construction output dropped 4.3% after the 1% decrease in July. An unprecedented 8% gain in September would be needed for construction output to be unchanged in the third quarter from the second, the ONS estimated. Slowing global growth as well as a strong Pound are taking their toll on UK companies, leaving the Bank of England in no rush to hike the benchmark interest rate from an all-time low.
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 Inflation data
A number of inflation data from the UK is due today, with improvements expected in most indexes, according to the forecast. Later today the US Monthly Budget Statement is to be released, but is unlikely to be a game-changing factor in the GBP/USD exchange rate, as the inflation data is more important.
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 still glued to 1.53
The Cable appears to have entered a consolidation period, as it keeps gravitating towards the 200-day SMA. This trend is yet to be confirmed by the Sterling's possible decline towards the monthly PP around 1.53 today. A correction is likely to take place, but a number of fundamentals could strengthen the Pound over the day, thus, extending the GBP/USD's rally. Immediate resistance lies above 1.54, represented by the weekly R1 and 55-day SMA. A rebound is possible due to the pair being supported by a strong cluster and a weaker US Dollar on increased Fed rate hike uncertainty.
Daily chart
The 1.53 major level seems to be providing sufficient support to limit the downside volatility of the Cable. However, the GBP/USD is also struggling to rise above the 1.5380 mark, repeating the situation on Friday.
Hourly chart
Bulls prevailing over bears
More than a half (61%) of traders retain a positive outlook towards the Cable, while 57% of orders are to buy the GBP (down from 60%).
The sentiment of other market participants also remains bullish. OANDA still has 57% of traders holding long positions. However, 52% of traders at SAXO Group now have a negative outlook towards the Cable, compared to 51% yesterday.
Spreads (avg, pip) / Trading volume / Volatility
28% 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 13 and Oct 13, the Sterling is expected to cost 1.5518 dollars in three months. The 1.62-1.64 price interval received the largest number of votes, namely 16%, followed in popularity by the 1.58-1.60 interval, selected by 14% of the voters. However, the overall majority (54%) believes that the Pound will still rise above the 1.56 major level by January 13.
The members of the Dukascopy Community are expecting the GBP/USD pair to follow the upward trend as well as to close at 1.543 by Friday, October 16.
The gap between the bulls and the bears is not too wide, as only 56% of traders expect the Sterling to outperform the US Dollar, while the remaining 44% remain short the Pound. RahmanSL, one of the Community members, said that "the UK inflation has been steady with expected employment figures. However, the US has suffered from poor export due to strong USD and falling oil prices. The UK Claimant Court Change will show a drop from last figures and, coupled with unchanged Employment Rate and better than last figure Average Earnings." On the other side of the barricade khalidamassi suggests that the GBP/USD rose last week after breaking 1.5200 after days of consolidation below. "The pair seemed slightly bullish but still need clear break and close above 1.5400 to confirm bullish direction towards 1.5600, in other scenario, pair may move in a range between 1.5200 and 1.5400 the next whole week", he mentioned.