- The share of sell orders slid from 65 and 63%
- Bullish market sentiment remains unchanged at 63%
- Immediate resistance is represented by the weekly PP and monthly S2 around 1.4380
- y The 2010 low around 1.4230 are the nearest support
- 69% 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
The British currency managed to rebound against most major peers on Monday, with exception against the Aussie and the US Dollar. The Sterling appreciated the most versus the Swissie, adding 0.39%, while also advancing 0.24% against the Yen and 0.12% versus the Euro. The GBP/NZD and GBP/CAD remained relatively unchanged over the day, climbing 0.08% and 0.05% higher, respectively. At the same time, the Sterling lost 0.25% versus the Aussie, whereas the GBP/USD declined only 0.11%.
The Bank of England newest rate-setter Gertjan Vlieghe hinted that interest rates may remain lower for longer or even be cut if a slowdown in Britain's economy intensifies. Vlieghe, who joined the central bank's Monetary Policy Committee in September, said that he wants to see more clues that economic growth is holding solid and inflationary pressures are mounting, before voting for a rise in borrowing costs. Vlieghe's comments are likely to strengthen expectations in financial markets that the Bank of England will not immediately follow the Fed and raise short-term interest rates from record lows. Investors doubt the UK central bank will hike its key rate from 0.5% until mid-2017. In his comments, Vlieghe said pay growth appeared to have stalled, adding that he was not confident that annual inflation is moving towards the central bank's 2% target. Vlieghe said that heavy debt loads, ageing populations and rising inequality meant that interest rates in many developed economies should stay lower now than they were in the past to support growth.
BoE's Governor Mark Carney is due to address rate expectations in a speech later in the day. In July last year, he said decision on whether to hike rates would become clear around the turn of the year.
UK inflation is the main Cable driver
Today 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 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 on the edge of falling to a fresh six-year low
The British currency retreated from intraday gains on Monday, ending the day with a 20-pip loss against the US Dollar. The GBP/USD pair now faces the 2010 low at 1.4230, as it has been trading in a strong bearish trend for the last five weeks. A sharp decline on Friday opened the door for a corrective rally up to 1.4440, where the down-trend lies; however, the weekly PP and monthly S2 form a rather strong supply around the 1.4380 area. Meanwhile, the Bollinger band and the weekly S1 should limit the dips in case UK fundamentals disappoint and push the Pound lower.
Daily chart
Even though the GBP/USD currency pair failed to rebound on Monday, another retest of the channel's lower border and the 2010 low today triggered a rally. The pair could now keep appreciating until it reaches the resistance trend-line around 1.4340, which in turn should then lead to another sell-off, as the Cable remains in a strong bearish trend.
Hourly chart
Bulls remain strong
For the fourth weekday in a row bullish market sentiment remains unchanged at 63%. The share of sell orders slid from 65 and 63%.
Meanwhile, other market participants have somewhat similar outlooks towards the GBP/USD, such as OANDA. At the moment 63% of OANDA traders hold long positions (previously 64%); however, among SAXO Bank traders, 54% of all open positions are short, compared to 53% previously.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.50 in three months
The majority of traders (69%) 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 26% of the voters, namely the 1.42-1.44 one, while the second most popular choice implies the Pound is to cost either between 1.50 and 1.52 dollars or between 1.48 and 1.50 dollars in three months, both chosen by 13% of the surveyed. At the same time, the mean forecast for April 19 is 1.469.