- 70% of all orders are to sell the GBP
- Bulls and bears take up 51% and 49% of the market, respectfully
- 18% of traders assume the British Pound will cost between 1.58 and 1.60 dollars in three months
- The nearest resistance lies at 1.5406, namely the 55-day SMA
- Immediate support rests at 1.5380 (weekly PP)
- Upcoming events today: US Markit Manufacturing PMI, UK BBA Mortgage Approvals, UK CBI Industrial Order Expectations, US New Home Sales
The Sterling rallied against some major peers on Thursday, but declined against the others. The largest gains of 1.89% and 1.26% were recorded against the Euro and the Swiss Franc. The Pound struggled the most against the Kiwi, as the GBP/NZD fell 1.43%, followed by a 0.53% decline against the Loonie. However, the British currency remained relatively unchanged against the American and Australian Dollars, losing 0.15% and 0.12%, respectively.
Retail sales in the UK surged much more than expected in September, fuelling optimism over the country's economic outlook and supporting the case for an interest rate hike. Total retail sales soared 1.9%, overshooting economists' expectations for a modest 0.4% gain and following the 0.4% decline a month earlier. At the same time, core measure, which excludes fuel, leapt 1.7% up from 0.7% in August, the Office for National Statistics reported. In annual terms, retail sales increased 6.5% in September, above expectations for a 4.8% rise, after climbing at a rate of 3.5% in August. The major contributor to the increase was a steep rise in food sales triggered by the August bank holiday, as well as a surge in beer sales during the Rugby World Cup. Food and drink sales rose by 2.3% on the month, the biggest gain since April 2014. However, the boost to spending from the four-yearly Rugby World Cup may wane in October, after England's early exit from the tournament.
Figures also showed retail sales volumes, which make up 5.7% of the total economic output, accelerated pace to 0.9% overall during the third quarter, with the ONS saying this increase should add approximately 0.1 of a percentage point to third-quarter economic growth.
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 Markit Manufacturing PMI
There are no significant events concerning the UK economy today, with only one other event from the US to influence the Cable, namely the Markit Manufacturing PMI. The PMI is released by the Markit Economics and captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the manufacturing PMI is an important indicator of business conditions and the overall economic condition in the United States. According to the forecast, the PMI is expected to worsen, therefore, somewhat weighing 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 makes effort to retake 1.54
The Sterling tested the resistance area around 1.55 for the seventh consecutive day and, surprisingly, ended up edging lower. The much better-than-expected US Existing Home Sales outweighed the UK's strong Retail Sales figures, causing the pair to edge 22 pips lower under 1.54. The Cable's attempts to return above the major level might be inhibited by the 55-day SMA, which is now the immediate resistance. However, due to lack of market movers today, the GBP/USD risks remaining within the borders of the 55-day SMA and the support at 1.5380, namely the weekly PP.
Daily chart
The 200-hour SMA failed to hold the GBP/USD from falling. The bullish momentum might be difficult to regain at this point, as there are no significant fundamental events to help the Sterling pierce the 200-hour SMA and stabilise above it.
Hourly chart
Bulls remain in the majority
Bulls and bears got closer to equilibrium, taking up 51% and 49% of the market, respectively, while 70% of all orders are to sell the GBP.
The sentiment of other market participants shifted to the bearish side. OANDA now has 53% of traders holding short positions (previously 54%). Meanwhile, 64% of traders at SAXO Group retain a negative outlook towards the Cable, compared to 63% on Thursday.
Spreads (avg, pip) / Trading volume / Volatility
18% of traders assume the British Pound will cost between 1.58 and 1.60 dollars in three months
According to the survey, conducted between Sep 23 and Oct 23, the Sterling is expected to cost 1.5507 dollars in three months. The 1.58-1.60 price interval received the largest number of votes, namely 18%, followed in popularity by two other intervals: 13% of voters believe the Pound will be either in the 1.62-1.64 interval or it will cost less than 1.46 dollars after three months. Nonetheless, the exactly half of the voters (50%) believes that the Pound will fall below the 1.56 major level by January 23.
As predicted by traders, the GBP/USD may close around the 1.538 level by Friday. However, traders are equally divided between the bulls and bears this week.
Last week the gap between the bulls and the bears was not wide, but right now the long and short position ration is equal to one. On the bullish side of the barricade Nuki1981 suggests that the "British Pound is gaining strength due to disappointing data from the US, following the trend of the EUR." Meanwhile, on the bearish side Daytrader21 believes that with the recent inflation figure tumbling and the future rates pricing in the first rate hike only later in 2016, we can expect GBP/USD to be kept under pressure. "First major supports came in the 1.4900-1.4800 area," he mentioned.