- The number of orders to sell the US Dollar edged lower from 56 to 53%
- 60% of traders hold long positions today
- The 20-day SMA forms resistance around 1.4467
- Support is at 1.4430, represented by the monthly PP
- 64% of traders reckon GBP/USD will be at 1.44 or higher in three months
- Upcoming events: US Retail and Core Retail Sales, US PPI, US Core PPI, US Preliminary UoM Consumer Sentiment, US Business Inventories
The Sterling's performance was mostly mild on Thursday, as there were significant movements registered only against three major currencies. The largest gain of 0.70% was recorded against the Australian Dollar, as the inflation expectations in Australia dropped to the lowest level in eight months. Another significant gain of 0.57% was seen versus the Japanese currency, as risk appetite kept driving the Yen higher. At the same time, the Pound edged 0.46% higher versus the Euro, but remained relatively unchanged against the Buck, surging only 0.02%. The GBP/NZD pair remained completely unchanged, while the Sterling sustained a 0.04% loss against both the Swissie and the Loonie.
The Bank of England warned Britain's economy would slow sharply, and could even slide into recession, if Britons voted to leave the European Union. The central bank added the Pound could decline sharply, while unemployment would probably climb. Consumers could delay spending and companies may postpone investment decisions. BoE Governor Carney said there were limits to what the BoE could do in response to an "Out" vote. Opinion polls show British voters have been relatively resistant so far to warnings about the economic costs of Brexit, with voting intentions in many polls roughly evenly split.
The Bank of England's May Inflation Report estimates that inflation will return back to the 2% goal by mid-2018, with the Brexit uncertainty weighing on the short-term growth outlook. Given the current threats, even with the UK remaining part of the EU, the BoE is not expected to hike interest rates before 2018. Also, the BoE revised down its outlook for short-term growth to 2% in 2016, from 2.2% predicted in February. At the same time, the BoE also lowered the GDP outlook for 2017 to 2.3%, from 2.4%, and to 2.3% from 2.5% in 2018. All forecasts in the May Inflation Report were made assuming that the British voters will support continued membership in the EU in the referendum.
US Retail Sales and PPI
Today's attention is focused on the US fundamental data, namely the Retail and Core Retails Sales, as well as the US PPI and Core PPI. The Retail Sales are released by the US Census Bureau and measure the total receipts of retail stores. Monthly percent changes reflect the rate of changes of such sales. Changes in Retail Sales are widely followed as an indicator of consumer spending. The Core Retail Sales, however, exclude the automobile sector. As for the US PPI, it is released by the Department of Labor and the Bureau of Labor Statistics. It measures the average changes in prices in primary markets of the US by producers of commodities in all states of processing. Changes in the PPI are widely followed as an indicator of commodity inflation. The Core data excludes the Food & Energy sector.
GBP/USD risks falling under 1.44
The Sterling experienced substantial volatility on Thursday, but remained almost completely unchanged against the US Dollar, unable to stabilise above the immediate resistance in face of the 20-day SMA. The Cable could post more gains today, but the slowing bullish momentum suggests that bears are likely to take over. Moreover, daily technical studies are bolstering the possibility of the negative outcome, suggesting that the closest support, namely the monthly PP, is to fail to keep the pair from edging lower. In this case, the main target will be the 100-day SMA, located around 1.4359.
Daily chart
The British Pound attempted to pierce the 200-hour SMA yesterday, but failed to maintain trade above 1.45 major level, resulting in a slump. The bearish momentum could prevail today, leading the exchange rate under the 1.44 mark, with a possible psychological support located around 1.4390/80.
Hourly chart
Bulls now in the majority
There are still 60% of traders holding long positions today, unchanged since yesterday. At the same time, the number of orders to sell the US Dollar edged lower from 56 to 53%.
At OANDA the bullish market sentiment keeps growing, as 55% of their open positions are long, and the remaining 45% are shor. Meanwhile, the sentiment at SAXO Bank remains close to the equilibrium, as 53% of their open positions are currently short, unchanged since Thursday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD above 1.44 in three months
The majority of traders (64%) 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 (30%) 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 13 is 1.4545.
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.