- The number of orders to sell the British currency declined from 71 to 55%
- 52% of traders are long the Sterling
- The main resistance is around 1.4482
- Support is around 1.4420, represented by the weekly and the monthly PPs
- 65% of traders reckon GBP/USD will be at 1.46 or lower in three months
- Upcoming events: UK Average Earnings Index, UK Claimant Count Change, UK Unemployment Rate, US Crude Oil Inventories, US FOMC Meeting Minutes, MPC Member Haldane Speech
'Bremain' votes kept providing support for the British currency on Tuesday, causing it to post gains across the board, even despite poor inflation figures. The Sterling appreciated the most against the Swiss Franc, namely 0.72%, while also adding 0.54% versus both the Loonie and the Japanese Yen. Other relatively solid gains of 0.46% and 0.42% were registered against the Euro and the US Dollar, respectively. At the same time, the UK Pound barely managed to advance versus the New Zealand Dollar, as the GBP/NZD surged only 0.13%. The Sterling, however, suffered a small decline 0.07% against the Aussie, which in turn was boosted by the RBA's Monetary Policy Meeting outcome.
Data on the UK inflation left analysts dissatisfied, falling short of expectations and showing the first dip in seven months. The Consumer Price Index rose 0.3% on a yearly basis in April, while economists had forecast the rate to remain unchanged at 0.5% from the month before. Monthly consumer prices advanced 0.1%, repeatedly missing analyst expectations of 0.3%, as the measure revealed a drop from previous month's 0.4%. Removing the effects of such volatile costs as food and fuel, the core inflation rate showed a leap in the predicted direction, nonetheless falling behind the expected 1.4% with a staggering 1.2%, compared to a 1.5% the month before. James Tucker, the head of CPI at the ONS claimed the main driver for the unexpected drop in inflation was the 14.2% dip in air fares that had climbed the month before, emerging from Easter holidays. The 0.4% shrinkage in clothing prices was named as another major contributor to the cutback in inflation.
The BoE said that a rise in inflation can be anticipated later this year due to a weaker Pound that should cause imported goods to become more expensive. The central bank expects a 0.9% inflation gain in the final quarter of the year, leading to a further 1.3% advance over next year's first quarter. While the expectations do not reach as far as achieving the 2% inflation target this year, the BoE is positive that the upward trend will extend and the UK will arrive at its target by mid-2018.
UK Labour Data and FOMC Meeting Minutes
From the UK side the labour data is due today, namely the Average Earnings Index, the Claimant Count Change and the Unemployment Rate. The Average Earnings Index shows the change in the price businesses and government pay for labour; it is also a leading indicator of consumer inflation. The Claimant Count Change shows the number of people claiming unemployment-related benefits during the previous month. Even though it is viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labour-market conditions. Nonetheless, the most important release is the FOMC statement. FOMC organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy.
GBP/USD on the edge of falling back under 1.44
The British Pound appreciated against the US Dollar for the second day yesterday, with the resistance area around 1.4482 managing to limit the gains. Today the pair is stuck between two clusters, namely the weekly and the monthly PPs from below, and the 20-day SMA and the weekly R1 from above. According to technical studies, however, the Cable is to edge lower, thus, a breach of the immediate support is likely to take place. Consequently, a drop under the 1.44 mark is then imminent, with focus shifting to the second demand area around 1.4340, represented by the 55 and the 100-day SMAs.
Daily chart
As was expected, the phantom resistance line around 1.4530 prevented the Sterling from posting more gains on Tuesday. The 200-hour SMA could now provide sufficient support to keep the Cable from edging lower, but it should not be counted on, as the possibility of the bearish momentum prevailing is quite high.
Hourly chart
Bears now in the majority
There are 52% of traders being long the Sterling today, compared to 49% on Tuesday. At the same time, the number of orders to sell the British currency declined from 71 to 55%.
At OANDA market sentiment slightly improved over the day, as 56% of their open positions are now long, compared to 53% on Tuesday. Meanwhile, the sentiment at SAXO Bank barely changed, as remain in the majority, taking up 56% of the market.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.46 in three months
The majority of traders (65%) believe the British currency is to cost 1.46 or less 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 18 is 1.4532.
Nevertheless, market sentiment among respondents is purely bearish, with almost 67% of Community members saying the pair will continue moving to the south later this week.
Pisakjanos said that he is expecting a support at 1.43 level. "Probably then the pair will return to bullish scenario," he commented.
Meanwhile, Likerty believes that the Cable is to edge lower by week's end. However, he still stated that "similarly to the EUR/USD, Pound has potential for bullish correction 1.4420."