- The portion of orders to acquire the Pound increased from 45 to 54%
- Bullish sentiment remains unchanged at 64%
- Main resistance is around 1.4219
- The nearest support is represented by the weekly PP at 1.4151
- 54% of traders reckon GBP/USD will be at 1.44 or lower in three months
- Upcoming events: Empire State Manufacturing Index, US Capacity Utilization Rate, US Industrial Production, US Preliminary UoM Consumer Sentiment
The British currency weakened against almost every other major peer on Thursday, with the only exception being the New Zealand Dollar. The Pound lost the most against the Australian Dollar, as upbeat Australian employment data boosted its domestic currency yesterday, causing the GBP/AUD to slump 0.90%. At the same time, mild losses of 0.35%, 0.34%, 0.30% and 0.28% were registered against the Buck, the Swissie, the Yen and the Euro, respectively. The GBP/CAD edged lower only 0.14%, whereas the Sterling managed to add 0.71% versus the Kiwi, amid some negative news from the RBNZ.
The Bank of England kept interest rates on hold at 0.5% and warned that the UK's exit from the European Union would create uncertainty and likely hurt the British economy in the short term. The decision was unanimous. Former dissenter Ian McCafferty, who had insisted on a 25 basis point increase at every meeting between August and January, voted with the other eight rate setters for a third month in a row to keep the key rate unchanged. Experts are now expecting rates to stay at 0.5% until 2017, with some predicting a rate increase to come sooner if Britain votes to stay in the EU.
The central bank sees GDP growth at a mature 0.5% pace in both the first and second quarter of this year. The economic outlook has deteriorated since the beginning of the year due to worries about a slowdown in China, the world's second largest economy, and as oil and commodity prices remained under pressure. At the same time, the labour market remains tight, with the unemployment rate staying at a decade-low of 5.1% in the three months through January. The BoE sees some downside risk to labour market stemming from an expected near-term slowdown in GDP. BoE policymakers expect a drop in the inflation rate in April as the Easter impact unwinds.
US Industrial Production and Capacity Utilization Rate
The last day of the week brings once again only data concerning the US economy. First of all, the US Industrial Production, which is released by the Board of Governors of the Federal Reserve, and shows the volume of production of US industries such as factories and manufacturing. Up trend is regarded as inflationary which may anticipate interest rates to rise. Second, the US Capacity Utilization Rate. The Capacity Utilization, released by the Federal Reserve Board, is the percentage of the US production capacity which is actually used over the short-time period. It is indicative of overall growth and demand in the U.S. economy. A high capacity utilization stimulates inflationary pressures.
GBP/USD: risks skewed to the downside
On Thursday the Sterling declined against the US Dollar, with the nearest support, namely the weekly PP, managing to limit the losses. Ever since the Cable bounced back from the five-week down-trend, the exchange rate kept edging lower. The weekly PP retains its role of the nearest support, but is unlikely to prevent the GBP/USD currency pair from falling deeper down. In this case the bearish momentum could extend towards the newly-formed falling wedge's support line at 1.4020, which is reinforced by the Bollinger band, the weekly and monthly S1s. Meanwhile, technical indicators are bolstering the possibility of the negative outcome.
Daily chart
The British currency requires more impetus to continue climbing higher against the US Dollar. The 1.4050 level is still a solid support, which is likely to limit downside volatility, while its breach implies a sharper decline beyond the 1.40 major level, with the support line eventually being retested.
Hourly chart
Sentiment remains bullish
Bullish sentiment remains unchanged at 64%, whereas the portion of orders to acquire the Pound increased from 45 to 54%.
Concerning the sentiment of other market participants, OANDA once again has a positive outlook towards the Cable, as 54% of their open positions are long, compared to 50% on Thursday. Meanwhile, the sentiment at Saxo Bank reached a perfect equilibrium, with 50% of all open positions now being long and the other 50% being short.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.44 in three months
The majority of traders (54%) 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 16% of the voters, namely the 1.46-1.48 one, while the second most popular choice implies that the Pound is to cost between 1.44 and 1.46 dollars in three months, chosen by 15% of the surveyed. At the same time, the mean forecast for July 15 is 1.4283.
This week the sentiment changed a little, as the same number of our weekly quiz participants expect the pair either to gain value or to decline. The average forecast for the end of the current week slightly went up, namely to 1.415.
Likerty, a member of the Dukascopy Community, shared his view on the GBP/USD pair's performance. "I suppose the Pound has the most bullish potential against US Dollar (of all majors)," he commented.
At the same time, Jignesh said that even though it is quite likely that Brexit fears are exaggerated, the market continues to put pressure on the GBP. "Last week the pair pierced through major support at 1.4050 and took stops with it. The downside here continues to be supported by the monthly bullish engulfing candle, though this is likely to be the last week the pair will look to be bid as the brief bullish sentiment of May continues to negate over time," he added.