- 68% of all orders are to sell the Cable
- 65% of all positions are long
- Immediate support is represented by the down-trend at 1.4892
- The Bollinger band around 1.4913 is the nearest resistance
- 66% of traders reckon GBP/USD will be at 1.54 or lower in three months
- Upcoming events: US Markit Services PMI, FOMC Member Lacker Speech
As the British Pound mostly ignored the strong reading of UK Retail Sales yesterday, it was unable to post gains against all major currencies. In fact, the Sterling managed to advance against commodity currencies, such as the Aussie, the Kiwi and the Loonie, adding 0.77%, 0.73% and 0.45%, respectively. At the same time, the Pound declined 0.69% versus the US Dollar and 0.40% against the Yen, while also remaining relatively unchanged versus the Swiss Franc (-0.05%).
British unemployment fell to pre-crisis levels in the three months through October, whereas pay growth continued to slow, bolstering the Bank of England's intention to keep interest rates ultralow. The number of people out of work dropped by 110,000 to 1.71 million between August and October. There were 31.3 million people in work, 505,000 more than a year ago. Consequently, the unemployment rate dropped to 5.2% in the quarter to October, the lowest level in nearly 10 years, whereas economists had expected the jobless rate to stay unchanged at 5.3%.
However, wage growth disappointed, and a sharp drop in earnings over the reported period indicated that interest rates would remain at a record low of 0.5% for longer. Total pay growth climbed by just 2.4% in the three months to October, down from 3% in the three months to September. Bank of England Governor Mark Carney said he would like to see earnings growth above 3% a year before he would increase interest rates. Even though wages have been rising slowly from their post-crisis lows, earnings growth has remained notably below the pre-downturn levels. While regular earnings increased on average by 4% before the economic slowdown, between 2001 and 2008, the same measure of pay climbed just 1.5% on average between January 2009 and September 2015.
Quiet Friday
No significant events from the UK are due today, while the Markit Services PMI from the US, being the only relevant event today, is unlikely to impact the market significantly. Nevertheless, according to the forecast the PMI is expected to remain unchanged, therefore, the Buck is likely to experience a small boost. Furthermore, there are also no important events on Monday, while on Tuesday the UK Public Sector Net Borrowing and the US Final GDP are due.
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 tests down-trend; confirms pattern
Despite upbeat UK Retail Sales data yesterday, the GBP/USD currency pair extended its post-Fed slump. Trade closed near the 1.49 major level and, thus, just in front of the falling wedge's support. This trend-line, also bolstered by the monthly S1 and weekly S2, should contribute to the Cable's rebound. The immediate resistance in face of the Bollinger band is likely to be ignored, with gains capped around 1.50. A fall towards the support cluster's lowest level, namely the weekly S2, is not out of the question.
Daily chart
The Cable continued falling yesterday, until it finally touched the lower trend-line and bounce back. The pair now is attempting to regain the bullish momentum and confirm the pattern. Even though there are no significant resistances on the way, the GBP/USD could still be subject to weakness and remain around the 1.49 major level.
Hourly chart
Bulls keep growing stronger
SWFX traders' sentiment keeps improving, as 65% of all positions are long (up from 63%). The portion of sell orders, however, remains unchanged and in the majority, taking up 68% of the market.
SAXO Group and OANDA now have different perspectives towards the GBP/USD. Among SAXO Group traders the majority still believes the US Dollar is to outperform the Sterling, as 52% of their positions are short (previously 53%). Meanwhile, 63% of OANDA traders have a positive outlook towards the Cable, compared to 58% yesterday.
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 (66%) believe the GBP/USD is going to cost 1.54 or less US dollars in three months. According to the survey, the most popular choice was the one implying that the Sterling will cost less than 1.44 dollars in three months, selected by 18% of the voters. Meanwhile, the second most popular choice was divided between 1.46-1.48 and 1.48-1.50, both chosen by 15% of the surveyed. At the same time, the mean forecast for Mar 18 is 1.5084.
During December 14-18 time period the Dukascopy Community members are undecided in terms of pair's movement. As predicted by traders, the GBP/USD may close around the 1.508 level this Friday.
Even though traders are equally divided between bulls and bears, a community member under the nickname agd-divisas believes the Cable could still edge higher. "This pair is bullish," he said, adding that "important resistance is at 1.5350 level. I think that at this level, the price can go down."
Meanwhile, on the bearish side ijayakumar suggests that because of the Fed interest rate hike forecast, the GBP/USD might go down; therefore, he is among the other 50% of traders that hold short positions.