- The number of buy orders inched higher from 36 to 53%
- The share of bulls remains unchanged at 53%
- 25% of traders believe the British Pound will cost more than 1.60 dollars after a three-month period
- Immediate resistance is around 1.55 (100-day SMA, monthly R1)
- The nearest support lies around 1.54
- Upcoming events today: MPC Member McCafferty Speech, BoE Governor Carney Speech, US Building Permits, US Housing Starts, FOMC Members Dudley and Powell Speeches, Fed Chair Yellen Speech
The Sterling appreciated against other major currencies on Monday. The most significant gain was recorded against the Loonie (0.98%), which suffered after the Federal Election results. Moderate gains were registered against other major peers, whereas the Pound struggled to advance versus the Greenback the most, adding only 0.17%.
Britons' confidence rebounded strongly to a record high in three months through September, as rising wages made consumers more secure about their jobs, business advisory firm Deloitte's latest report showed. Overall consumer confidence climbed by two points to -5, the highest in four years, according to the latest Consumer Tracker by Deloitte. This is despite recent turmoil in the financial markets, with the FTSE 100 plunging by 700 points during the same period. All six components of the survey, including job opportunities, career progression and perceptions about debt increased compared with the preceding quarter. Deloitte said strong employment and robust wage growth meant people were spending more money on eating out and leisure while many also felt upbeat about their job prospects in the months ahead. Moreover, as inflation slid back into negative territory in September and is predicted to remain close to zero for the remainder of the year, this would help to keep consumer confidence high for the rest of 2015.
Meanwhile, if the UK opts to stay in the EU and achieves the market reforms it wants, it could receive a 58 billion pounds economic boost and 790,000 new jobs by 2030, CEBR study showed.
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 Building Permits
No data releases are scheduled for today from the UK, but the BoE Governor's Speech is still an important even that is likely to influence the Sterling crosses' exchange rate, especially if news about the future interest rate hike will be revealed. Nonetheless, the data release worth paying attention to is the US Building Permits, which is released by the US Census Bureau, shows the number of permits for new construction projects at the Department of Commerce. It implies the movement of corporate investments (US economic development) and tends to cause some volatility to the USD. According to the forecast, no changes are expected in the Building Permits, but any shift is likely to influence the Cable accordingly, unless Carney's speech weighs or boosts the Sterling more efficiently.
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 attempts to break out of its current trading range
A correction took place on Monday, pushing the GBP/USD slightly higher. The Cable tested the resistance cluster around 1.55, but failed to pierce it due to lack of momentum. A break of this given cluster is expected to ensure a bullish trend; however, a positive surprise in the US fundamentals is likely to cause a selloff. As a result, the Pound risks falling under the 1.54 major level, with the weekly PP at 1.5380 holding the losses. On the other hand, the given pair has the potential to reach the cluster around 1.5565, but the upper Bollinger band might prevent that from happening.
Daily chart
The GBP/USD keeps jumping between 1.5420 and 1.55, unable to breakaway in either direction. The 1.55 major level is tested more frequently and could eventually give in, allowing the Cable to prolong its bullish trend.
Hourly chart
Bulls remain in the majority
For the second day the share of bulls remains unchanged at 53%, whereas the number of buy orders inched higher from 36 to 53%.
The sentiment of other market participants shifted to the bearish side. OANDA still has 53% of traders holding short positions (unchanged since yesterday). Meanwhile, 65% of traders at SAXO Group retain a negative outlook towards the Cable, compared to 61% on Monday.
Spreads (avg, pip) / Trading volume / Volatility
25% 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 20 and Oct 20, the Sterling is expected to cost 1.5477 dollars in three months. The 1.58-1.60 price interval received the largest number of votes, namely 16%, followed in popularity by the 1.50-1.52 interval, selected by 15% of the voters. However, the overall majority (54%) believes that the Pound will fall below the 1.56 major level by January 20.