- The share of purchase orders increased 17 percentage points to 52%
- The number of long positions takes up 58% of the market
- 26% of traders believe the British Pound will cost more than 1.60 dollars after a three-month period
- Immediate resistance is around 1.5485 (100-day SMA and monthly R1)
- The nearest support lies around 1.5420
- Upcoming events today: US CPI and Core CPI, US Jobless Claims, US Empire State Manufacturing Index, US Philly Fed Manufacturing Index, FOMC Member Dudley Speech, US Crude Oil Inventories
In spite of poor Average Earnings Index and Claimant Count Change readings, the Sterling managed to appreciate against most major peers due to a better-than-expected Unemployment Rate figure. The GBP/USD edged 1.50% higher amid weak US Retail Sales and PPI data, whereas moderate gains were detected versus the Yen, the Aussie, the Loonie, the Euro and the Swiss Franc. However, a loss of 0.72% was detected against the New Zealand Dollar.
The UK jobless rate dropped to the lowest level in seven years in August, while proportion of people in employment rose to the highest level since records began in the 1970s. The unemployment rate came in at 5.4% for the three months through August, compared with 5.5% in the three months to July, as the number of unemployed people dropped by 79,000 to 1,77 million. The Office for National Statistics reported employment surged by 140,000 over the period, increasing the number of people in work to 31.12 million. The employment rate also reached a record high of 73.6%. While the decline in consumer prices boosted consumers' purchasing power, Britons also enjoyed growth in wages, which rose 3%.
Last week, the International Monetary Fund upgraded its growth outlook for the UK, while revising downwards its expectations for the world's economy as a whole, due to concerns over emerging markets and China. The think-tank predicted British growth to be 2.5% this year, and 2.2% in 2016. In fact, the IMF highlighted the economy as a rare bright spot amid a dismal global outlook.
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 CPI and Philadelphia Fed Manufacturing Index
No significant fundamental data releases are scheduled for Thursday, thus, attention should be paid to the data from the US. The most important events are the US CPI and the Philadelphia Manufacturing Index. The CPI is released by the US Bureau of Labor Statistics and is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. According to the forecast, the inflation is expected to slow down. The Philly Manufacturing Index is a spread index of manufacturing conditions (movements of manufacturing) within the Federal Reserve Bank of Philadelphia. This survey, served as an indicator of manufacturing sector trends, is interrelated with the ISM manufacturing Index (Institute for Supply Management) and the index of industrial production. It is also used as a forecast of The ISM Index. Although improvements are anticipated in the given index, the figure is still likely to be negative and, thus, weigh on 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 in limbo, awaits US data
In spite of worse-than-expected UK fundamentals, the Cable managed to surge on poor US economic data on Wednesday. The 229-pip rally was stopped only by the third resistance cluster around 1.5485, which might cause the Sterling to undergo a correction today. Nevertheless, if the US data turns out to be weak again today, the British Pound could reach a four-week high at 1.5568, bolstered by the 38.20% Fibo at that point. Technical studies also suggest the given pair is to edge higher by the end of the day.
Daily chart
The 1.5380 area was overcome with the help of the fundamental data, but with gains capped near the 1.55 major level, namely at the resistance trend-line. The trend-line keeps preventing the Cable from rising higher and could eventually cause a small decline, but a breach is quite possible, as the Pound has made a decent amount of attempts to do so.
Hourly chart
Bulls prevailing over bears
The number of long positions remains unchanged since yesterday, taking up 58% of the market. The share of purchase orders, on the other hand, increased 17 percentage points to 52%.
The sentiment of other market participants shifted to the bearish side. OANDA now has 51% of traders holding short positions (previously 46%). Meanwhile, 61% of traders at SAXO Group retain a negative outlook towards the Cable, compared to 54% on Wednesday.
Spreads (avg, pip) / Trading volume / Volatility
26% 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 15 and Oct 15, the Sterling is expected to cost 1.5497 dollars in three months. The 1.62-1.64 price interval received the largest number of votes, namely 15%, followed in popularity by the 1.50-1.52 and 1.58-1.60 intervals, each selected by 14% of the voters. However, the overall majority (52%) believes that the Pound will still rise above the 1.56 major level by January 15.
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.