- The portion of sell orders returned to its Friday's level of 59%
- The share of short positions returned to its Friday's level of 60%
- The 20-day SMA around 1.5275 is preventing the pair from edging higher
- The bottom target is the cluster around 1.5185
- 56% of traders reckon GBP/USD will be at 1.54 or lower in three months
- Upcoming events today: UK CPI and Core CPI, UK PPI, UK RPI, UK HPI, US CPI and Core CPI, US Capacity Utilization Rate, US Industrial Production
The Sterling remained strong against most major peers on Monday, with exception versus the Loonie and the US Dollar. The Pound gained 0.55% and 0.50% versus the Euro and the Kiwi, respectively, while also adding .24% against the Yen, 0.18% versus the Aussie and 0.12% against the Swiss Franc. Nevertheless, small declines, but losses nonetheless, were registered against the Greenback (0.22%) and the Canadian currency (0.17%).
The UK unemployment rate dropped to the lowest level in seven years in the third quarter, extending an improvement in the labour market, the Office for National Statistics reported. The jobless rate declined to 5.3%, whereas economists had expected the rate to remain unchanged at 5.3%. However, the claimant count increased for the third consecutive month, up by 3,300 in October to 795,500. Despite the improvement in the headline numbers, the report also showed some weakening in the pace of wage growth. Earnings excluding bonuses climbed an annual 2.5% in the reported period, down from 2.8% in the previous three months and missing expectations for a reading of 2.6%. Total pay rose 3%, due to a 15% surge in bonuses.
The BoE's November Inflation Report showed labour demand growth had remained robust, and both wage and productivity growth had picked up since last year, but remained below pre-crisis rates. The new forecasts also showed the central bank saw the unemployment rate falling further to 5.3% in the fourth quarter of this year, then remain around that level throughout next year, before sliding slightly to 5.2% in Q4 2016.
UK and US CPIs are the main drivers
A number of inflation data is due today from the UK, as well as the CPI and Core CPI from the US. These inflation reports are the main drivers of the Cable today. The main UK inflation report is also the CPI, which is released by the National 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 GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. According to the forecast, the CPI is likely to keep slowing down, as a negative figure is expected. Any improvements are likely to bolster the Sterling today, but due to the US CPI forecasted to rebound, the GBP/USD specifically should decline if data falls in line with expectations.
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 at the beginning 2016."
GBP/USD on the verge of returning to Sep low
On Monday, the Cable tested the immediate support, but stabilised in front of the 1.52 major level, as was anticipated. Technical studies and the 20-day SMA crossing the 55-day one to the downside are both indicating a possible decline to take place today. As a result, the immediate support cluster risks getting pierced, with the second solid target to limit the dips located only at 1.5096, the weekly S1. However, the UK and US fundamentals could still turn in favour of the Sterling, causing the currency pair to extend its post-NFP recovery, thus, edging closer to the 20-day SMA around 1.5275.
Daily chart
The short-term trend-line was breached yesterday, with the next target being the 23.60% Fibo. However, the GBP/USD might ignore the immediate support, as the pair appears to be glued to the 200-hour SMA and is following its direction.
Hourly chart
Bears still prevailing over bulls
Both shares of short positions and orders to sell the Pound returned to their Friday's levels of 60% and 59%, respectively.
The distribution between the bulls and bears at OANDA slightly changed since Monday, as 61% of open positions are short and 39% are long. Meanwhile, the proportion of bulls at SAXO Bank failed to remain in the majority, but with the gap between short and long positions still being rather narrow. Bulls still take up 45% of the market, while bears-the remaining 55%.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.54 in three months
There appears to be no clear view in the market how the Cable is going to perform during the next three months, but 56% of survey participants reckon that GBP/USD will be at 1.54 or lower. Judging by the results of the poll conducted in October, 20% of traders expect the Sterling to cost between 1.48 and 1.50 US dollars in the middle of February. At the same time, only 12% of the estimates are that the UK currency will be worth somewhere between 1.50 and 1.52 US dollars in three months. The mean forecast for Feb 17 at 1.5378.