- The share of buy orders declined from 54 to 44%
- 60% of traders hold long positions
- The 20-day SMA forms resistance around 1.4453
- Support is at 1.4427, represented by the monthly PP
- 66% of traders reckon GBP/USD will be at 1.44 or higher in three months
- Upcoming events: BoE Inflation Report, UK Monetary Policy Summary, BoE Official Bank Rate, Asset Purchase Facility, BoE Governor Carney Speech, US Jobless Claims, US Import Prices, FOMC Members Rosengren and George Speeches
With fears of ‘Brexit' weighing on the UK currency pair, losses were registered across the board on Wednesday, with the only exception being the Cable. Weak UK Manufacturing and Industrial Productions data also played its part in the Pound's underperformance yesterday, triggering a 0.84% decline against the Kiwi and 0.74% versus the safe haven Yen. Other notable losses of 0.48%, 0.43% and 0.40% were registered against the Swiss Franc, the Euro and the Loonie, respectively. At the same time, the smallest loss of 0.13% was detected against the Australian Dollar, while the Sterling managed to add 0.04% against American currency,
Britain's manufacturing output recorded the biggest annual decline in any month for nearly three years, fuelling fears over the health of the country's overall economy. The Office for National Statistics said UK manufacturing output edged up by only 0.1% in March on a seasonally-adjusted basis, after falling 0.9% in February. Factories production in March was down 1.9% on the same month of last year, the sharpest year-on-year decrease since May 2013. Manufacturing, which makes up 70% of industrial production, has been hard hit by the crisis in the steel sector. The official data also showed that total industrial production, which is made up of manufacturing, mining and quarrying, North Sea oil and gas, water supply and the supply of electricity and gas, rose to 0.3% month-on-month from a decline of 0.2% a month before, but less than expected. The production was primarily driven by stronger output in electricity and gas that rose 3.3%, which was due to unseasonably cold weather in March. Britain's industrial production is 10% lower than it was when the UK entered recession in early 2008.
The ONS added the updated industry figures will have no real effect on the second estimate of the GDP in the first quarter. The first estimate showed the British economy grew 0.4%.
BoE Monetary Policy Summary and the Official Bank Rate, US Jobless Claims and Import Price Index
With today's BoE Inflation Report and the Monetary Policy Summary, volatility in Sterling crosses is expected. The BoE is also to decide on the official bank rate, which is the rate used when lending to financial institutions. The rate decision is usually priced in the market, so it tends to be overshadowed by the Monetary Policy Summary. A surprise rate hike or cut is likely to trigger serious movements in the GBP pairs. Although these are the mains events for Sterling crosses, the US data could also have some impact on the Cable today, namely the Jobless Claims and the Import Prices. The Initial Jobless Claims are a measure of the number of people filing first-time claims for state unemployment insurance. In other words, it provides a measure of strength in the labor market. A larger than expected number indicates weakness in this market, which influences the strength and direction of the US economy. The US Import Price Index informs the changes in the price of imported products into the US. The higher the cost of imported goods, the stronger the effect they will have on inflation, redunding in a higher probability of a rate rise.
GBP/USD poised for more gains
The Cable remained relatively unchanged against the US Dollar on Wednesday, having edged only seven pips higher. As a result, the target level was not retaken, leaving that opportunity for Thursday. The GBP/USD pair today opened between the 20-day SMA from the upside and the monthly PP from the downside, but either one of those levels risk being pierced today, as they failed to contain the Sterling's movements since the beginning of the week. Technical indicators are also unable to provide any clear sense of direction, but the monthly ones remain tilted to the upside, suggesting that the 1.45 mark could be reconquered after today's BoE rate decision.
Daily chart
The Cable's volatility caused the descending channel's upper border to be pierced yesterday, but the 1.45 level remained intact, with the 200-hour SMA still providing resistance there. Although the exchange rate appears to have returned within the borders of the channel pattern, a breach to the upside now has a higher chance to occur.
Hourly chart
Bulls now in the majority
Today 60% of traders hold long positions, compared to 55% yesterday. Meanwhile, the share of buy orders declined from 54 to 44%.
At OANDA the bullish market sentiment keeps growing, as 56% of their open positions are long, and the remaining 44% are short, unchanged since yesterday. Meanwhile, the sentiment at SAXO Bank remains close to the equilibrium, as 53% of their open positions are currently short, compared to 52% on Wednesday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD above 1.44 in three months
The majority of traders (66%) believe the British currency is to cost 1.44 or more dollars after a three-month period. The most popular price interval was selected by more than a quarter (33%) of the voters, namely the 1.44-1.46 one, while the second most popular choice implies that the Sterling is to cost between 1.42 and 1.44 dollars in three months, chosen by 13% of the surveyed. At the same time, the mean forecast for Aug 12 is 1.4543.
The absolute majority of Dukascopy traders (88.9%), who took part in the Community Forecasts survey last week are bearish on the Pound and see the pair aiming to reach the 1.44 level.
Among the small part of bullish traders Jay said that his bullish prediction is based on technical indicators, backing his stance.
At the same time, Jignesh is with the majority on the USD/JPY, expecting it to edge lower by week's end. "Similar to the EUR/USD, we have a bearish candle. Specifically, a bearish engulfing weekly candle. Signaling to a continuation in the pull back that started last week. Though the GBP is showing some strength in other pairs, this pull back can be shallow in comparison to the rest of the majors," he mentioned.