- The share of buy orders declined from 52 to 29%
- SWFX sentiment remains bullish at 56%
- 27% 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 1.5415
- Upcoming events today: MPC Member Forbes Speech, US Capacity Utilization Rate, IUS Industrial Production, US Preliminary UoM Consumer Sentiment and Inflation Expectations, US JOLTS Job Openings
The Sterling suffered losses against most major peers, with exception against the Euro, where it gained 0.62%. The Pound declined the most against the commodity currencies, such as the Kiwi, losing 1.01%, followed by 0.69% and 0.51% losses against the Loonie and the Aussie, respectively. However, the British currency remained relatively unchanged against the US Dollar (-0.12%), the Yen (-0.07%) and the Swissie (-0.02).
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.
Preliminary UoM Consumer Sentiment
For the second day there are no important data releases concerning the UK economy today, therefore, diverting attention to the US fundamentals. The most significant even is the Preliminary UoM Consumer Sentiment, which is released by the University of Michigan. It is a survey of personal consumer confidence in economic activity and shows a picture of whether or not consumers are willing to spend money. The given index is expected to improve, as well as the Industrial Production and JOLTS Job Openings; thus, strengthening the US currency. However, the Capacity Utilization Rate is forecasted to worsen. If any other data release disappoints today, the Greenback could sustain losses against other major currencies.
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 tight range between 1.5415 and 1.5485
The Cable experienced minor volatility on Thursday, ultimately suffering a slight decline on mixed US economic data. Nevertheless, the Sterling remains at a three-week high, but the situation might change today. The 100-day SMA and the monthly R1 keep providing resistance around 1.5485, lowering the Pound's chances of edging higher. The support cluster just above 1.54 is also unlikely to give in, suggesting that the GBP/USD is to remain within the borders of the two clusters. Furthermore, technical indicators shifted from bullish to mixed both in the daily and the weekly timeframes.
Daily chart
The GBP/USD tested the resistance trend-line and was unable to hold trade above the 1.55 major level. The pair keeps consolidating, awaiting for potential market movers. In case a rally occurs, it is likely to be capped around 1.5540, namely at the trend-line; whereas there is enough room for a decline towards the 200-hour SMA.
Hourly chart
Bulls prevailing over bears
Although the SWFX sentiment remains bullish at 56% (previously 58%), the share of buy orders declined significantly, from 52 to 29%.
The sentiment of other market participants shifted to the bearish side. OANDA now has 54% of traders holding short positions (previously 51%). Meanwhile, 60% of traders at SAXO Group retain a negative outlook towards the Cable, compared to 61% on Thursday.
Spreads (avg, pip) / Trading volume / Volatility
27% 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 16 and Oct 16, the Sterling is expected to cost 1.55 dollars in three months. The 1.62-1.64 price interval received the largest number of votes, namely 16%, followed in popularity by the 1.50-1.52 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 16.
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.