- The share of buy orders slid from 61 to 56%
- 65% of traders are long the GBP
- Main resistance is the weekly S1 at 1.4192
- Target is now the monthly pivot point at 1.4141
- 56% of traders reckon GBP/USD will be at 1.44 or lower in three months
- Upcoming events: UK Annual Budget Release, US Building Permits, US CPI and Core CPI, US Housing Starts, US Capacity Utilization Rate, US Industrial Production, US Crude Oil Inventories, FOMC Statement, US Federal Funds Rate
Due to the return of ‘Brexit' fears, the Sterling sustained heavy losses against most major peers on Tuesday. The largest decline was registered against the strengthened by the BoJ Yen, namely 1.63%, followed by 1.06% declines against both the US Dollar and the Swissie, whereas slumping 1.10% versus the Euro. Concerning commodity currencies, performance was significantly better, but losses of 0.34% and 0.29% were still registered against the Loonie and the Aussie, respectively. The only gain of 0.06% was detected versus the third commodity currency – the Kiwi.
Americans are showing renewed signs of caution due to ongoing financial-market turbulence, as retail sales declined last month and January's increase was revised to a drop. According to the Commerce Department, retail sales fell 0.1% in February to a seasonally adjusted $447.31 billion as automobile purchases decreased and cheaper gasoline lowered receipts at service stations. Moreover, January's figure was revised down to a 0.4% decline from the 0.2% gain previously reported. Core retail sales, which correspond most closely with the consumer spending component of GDP, were unchanged in February. The data could give the US central bank more reason to maintain interest rates on hold on Wednesday, when the Fed is due to release its latest policy statement. Following the data release, economists lowered their first-quarter GDP growth estimates by a percentage point to as low as a 1.9% rate. Retail sales are a key indicator of overall consumer spending, which makes up for about two-thirds of the US economic output. Still consumer spending remains buoyed by an improving labour market and rising house prices.
A separate report showed the producer price index declined 0.2% in February on lower energy and food costs, after climbing 0.1% in January. Measured on an annual basis, the reading remained unchanged after sliding 0.2% in January.
US data to worsen
There are a number of US related data today, that is expected to have a significant impact on the GBP/USD pair. The most important events are the FOMC Meeting and the Fed Interest Rate Decision. The Board of Governors of the Federal Reserve announces an interest rate. This interest rate affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers. It also tends to affect the exchange rate. Concerning the economic data releases, the US CPI is due. The Consumer Price Index is released by the US Bureau of Labor Statistcs 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 USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. The Core CPI, however, excludes Food and Energy. Both CPIs are forecasted to worsen, prior to the Fed meeting.
GBP/USD struggles to remain above 1.41
The Sterling suffered a rather serious decline against the US Dollar on Tuesday, as fears of a ‘Brexit' returned. A strong demand area in face of the monthly PP managed to prevent the Cable from edging deeper. The pair faces the same support today, which is also reinforced by the 20-day SMA. In case of a breach the second area to limit the losses is located at 1.40 psychological level, also bolstered by the weekly S2. Meanwhile, technical studies are giving mixed signals, implying that a possibility of the Pound returning back above 1.43 exists, but the weekly PP and the 55-day SMA around 1.4320 are expected to provide sufficient resistance if a rally occurs.
Daily chart
As was anticipated, the ascending channel's lower boundary was pierced on Tuesday, with the GBP/USD currency pair edging below 1.42 and even reaching the 1.41 level today. A lot depends on the Fed to steer the Cable in either direction. Potentially, the Sterling could edge above the 200-hour SMA today, but a slump even towards 1.39 is also possible.
Hourly chart
Sterling overbought in SWFX
Market sentiment barely changed, as 65% of traders are still long the GBP (previously 66%), but the share of buy orders slid from 61 to 56%.
A similar but to a lesser extent attitude is observed at OANDA, where 57% of open positions are long, two percentage point less than yesterday. On the other hand, SAXO Bank traders appear to be undecided with respect to the Cable's prospects, being that 50% of positions are long and 50% are short.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.44 in three months
The majority of traders (56%) believe the British currency is to cost 1.44 or less dollars after a three-month period. The most popular price interval was selected by 17% of the voters, namely the 1.34-1.36 one, while the second most popular choice implies that the Pound is to cost between 1.48 and 1.50 dollars in three months, chosen by 14% of the surveyed. At the same time, the mean forecast for June 16 is 1.4234.
Concerning the Community Forecasts, the pair is expected to continue moving sideways this week, as consensus forecast stands for 1.423, just 3 pips below the daily pivot. Additionally, almost equal number of participants is having a bullish and bearish outlook on the pair, while market sentiment is slightly bearish.
On the bullish side of the barricade Jignesh believes that the USD is once again under pressure, and bulls area finding value in the GBP/USD as it trades in the multi decade support zone. "Dips below 1.40 are considered value buys for swing traders and for that reason this pair is well supported. Overhead resistance comes in at 1.4650 - 1.4700. As the pair remains in a longer term down trend and risks of Brexit have not yet subdued", he added.
At the same time, a trader with a bearish outlook, bakafx, suggests that "the bullish reaction on GBP/USD has limit in fundamental study so I am expecting new bearish leg with price between 200 MA on 4H at 1,4269 and WP at 1,4309."