- The percentage of sell orders grew from 57 to 65%.
- Bullish market sentiment remains unchanged at 63%
- Immediate resistance is represented by the weekly PP and monthly S2 around 1.4380
- y The Bollinger band and the 2010 low around 1.4235 are the nearest support
- 70% of traders reckon GBP/USD will be at 1.50 or lower in three months
- Upcoming events: UK CPI, UK PPI, UK RPI, US NAHB Housing Market Index
On Friday and over the weekend the Sterling declined against most major peers, with exception against the Aussie and the Loonie. The heaviest loss was registered against the Japanese Yen, with the Pound falling 2.03%, while two more significant declines of 1.54% and 1.53% were detected versus the Euro and the Swissie, respectively. The British currency, however, managed to advance against two commodity currencies, namely 0.78% against the Aussie and 0.11% against the Loonie, despite having fallen 0.91% versus the Kiwi.
The UK construction output unexpectedly dropped in November, experiencing the biggest decline since May 2013, adding to signs that the nation's economy may struggle to gather steam after a mid-year slowdown. Output of the British building companies declined 0.5% on a monthly basis in November, according to the Office for National Statistics. Analysts, however, had predicted a 0.5% rise. In annual terms, output decreased 1.1%, against expectations that it would stagnate in the reported month. The ONS said bad weather may have undermined the construction activity, which accounts for around 6% of economic output. A sharp drop in construction output in the third quarter weighed on economic growth, which matched its lowest rate since late 2012 over that period. Construction output plunged 1.9% in the third quarter of 2015. The ONS said construction output would have to climb by 2.6% month-on-month in December to avoid a decline for the fourth quarter as a whole.
However, Markit/CIPS reported earlier January that the UK builders' activity picked up pace in December as commercial construction surged at the fastest pace since October 2014, and the outlook for 2016 improved. The headline PMI measure increased to 57.8 in December, up from a seven-month low of 55.3 in November.
Quiet Monday in terms of economic data releases
There are no significant data releases from the UK side today, whereas there is also a bank holiday in the US today. However, on Tuesday a number of UK inflation data is due. First of all, the UK CPI, or 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. According to the forecast, the CPI is likely to grow and boost the Sterling. Second, the the Producer Price Index Input, also released by the National Statistics, is a monthly measurement of the rate of inflation experienced by the UK manufactures when buying goods and services. It captures changes in the average price of a fixed basket of goods and services purchased by the UK Manufactures. Although the figure is expected to remain negative, there should still be signs of growth present and should be positive for the British currency.
From the US side, the NAHB Housing Market Index is due. It is released by the National Association of Home Builders and it presents home sales and expected home buildings in the future indicating housing market trend in the United States. The growth rate of the housing market affects the USD volatility, but this particular release is unlikely to cause strong volatility.
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 attempts to retake 1.43
On Friday the Cable suffered a 150-pip loss, breaching the immediate support and closing in on the 2010 low. The Pound is now supported by the Bollinger band, which is the final obstacle, preventing the GBP/USD from falling to the lowest in six years. At the same time, the weekly PP and the monthly S2 now form a resistance cluster circa 1.4380, but a test today is unlikely. Nevertheless, the Sterling is expected to undergo a correction and recover some losses against the Buck, despite technical indicators retaining mixed signals.
Daily chart
Friday's decline caused the pair to breach the descending channel to the downside, but price managed to return within the channel's borders earlier today. Support is growing stronger, with the trend-line and the 2010 low forming a cluster, indicating a possible rebound is due.
Hourly chart
Bulls remain strong
Bullish market sentiment remains unchanged at 63%, whereas the percentage of sell orders grew from 57 to 65%.
Meanwhile, other market participants have somewhat similar outlooks towards the GBP/USD, such as OANDA. At the moment 64% of OANDA traders hold long positions (previously 62%); however, among SAXO Bank traders, 53% of all open positions are short, compared to 50% previously.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.50 in three months
The majority of traders (70%) still believe the British currency is to cost 1.50 or less dollars after a three-month period. The most popular price interval was selected by 27% of the voters, namely the 1.42-1.44 one, while the second most popular choice implies the Pound is to cost between 1.50 and 1.52 dollars in three months, chosen by 13% of the surveyed. At the same time, the mean forecast for April 18 is 1.4717.