- 51% of all orders are now to buy the Sterling
- 52% of all positions are now short
- Immediate resistance is represented by 55-day SMA around 1.5233
- The monthly PP and the 23.60% Fibo at 1.5185 are the nearest support
- 64% of traders reckon GBP/USD will be at 1.54 or lower in three months
- Upcoming events: MPC Member Shafik Speech, UK CPI, UK PPI, UK RPI, US CPI and Core CPI, Empire State Manufacturing Index
The British currency advanced mostly against commodity currencies on Friday and over the weekend. Gains of 1.38% were detected against both, the Aussie and the Loonie, followed by a 0.61% gain against the Kiwi; all amid falling oil prices. The GBP/USD also managed to climb higher, namely adding 0.35%, whereas the Pound suffered a 0.45% loss against the Swissie and 0.28% against the Yen. At the same time, the Sterling remained relatively unchanged against the Euro, losing only 0.04%.
The Bank of England kept interest rates at record lows, pointing to lower oil prices and weak wage growth, which is likely to keep a lid on inflation for some time to come. The nine-member Monetary Policy Committee voted eight to one to leave the main interest rate at 0.5%, where it has been since 2009. Policy makers voted unanimously to maintain the size of the BoE's bond portfolio at 375 billion pounds. For the majority officials, the outlook for growth and inflation in Britain does not yet justify a hike in the BoE's benchmark rate. Consumer inflation dropped 0.1% on the year in October and the gauge is expected to stay below the central bank's target of 2% throughout 2016. Investors expect the BoE to raise interest rates late next year or early 2017.
Meanwhile, a separate report showed the UK's trade deficit widened sharply in October as imports rose. In the three months to October, the total trade shortfall increased to £8.4bn. More broadly, the import of goods jumped from £2.3bn to £35.4bnon month in October. At the same time, exports of goods decreased by £700m to £23.5bn, with many firms blaming a strong Sterling for a loss of competitive advantage.
Quiet Monday
Monday is a rather quiet day in terms of fundamental data from both the US and the UK. Nevertheless, tomorrow a number of UK inflation data are due, with the most important one being the CPI. The Consumer Price Index 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. Also on Tuesday the US CPI and Core CPI are due. The difference between them is that the Core one excludes food and energy, when calculating price change of goods and services purchased by consumers.
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 set to return under 1.52
The Cable ignored the positive US fundamental data on Friday, as the IMF's upbeat report on the UK economy boosted the British currency. However, the resistance trend-line was not reached, as the 55-day SMA limited the volatility and is caused the pair to suffer losses on Monday during the Asian session. Due to lack of market movers, the correction is likely to bring the GBP/USD down to the 1.5195 level, where the monthly PP coincides with the 23.60% Fibo. In case of a breach, the second target to stop the decline is located around 1.5135, namely the weekly PP and 20-day SMA.
Daily chart
The GBP/USD has been appreciating since Tuesday last week and is now facing a possible up-trend near the 23.60% Fibo mark. Although there is a possibility of the Sterling rebounding from this point, the demand here most likely is insufficient to cause a rebound. Price could still return above this area over the day, even in spite of a breach.
Hourly chart
Market sentiment now bearish
Bulls and bears switched places on Monday, as 52% of traders are now holding short positions and the remaining 48% - long.
OANDA and SAXO Group now both have a negative outlook towards the GBP/USD. At OANDA 53% of traders are holding short positions and the remaining 47% - long. Meanwhile, the share of bears at SAXO Group is taking up 69% of the market, compared to 67% last Friday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.54 in three months
The majority of votes shifted to the bearish, as most of the survey participants (64%) believe the GBP/USD is going to cost 1.54 or less US dollars in three months. The most popular price interval is the 1.48-1.50, chosen by slightly less than a fifth (18%) of the voters, while the second choice in popularity is taken by the 1.46-1.48 price interval, chosen by 14% of survey participants. Meanwhile, the mean forecast for Mar 14 is 1.5147.