- The portion of buy orders slid from 66 to 61%
- 59% of traders hold short positions
- The main resistance is around 1.4660
- Support is at 1.4602, represented by weekly R2
- 58% of traders reckon GBP/USD will be at 1.46 or lower in three months
- Upcoming events: UK CB Industrial Order Expectations, FOMC Member Tarullo Speech, US Existing Home Sales
A positive reading of the UK Retail Sales data yesterday caused the Sterling to outperform most major peers. The largest gain was recorder against the Canadian Dollar, namely 0.55%, while against the other commodity currencies the Pound added only 0.11% (versus the Aussie) and 0.04% (versus the Kiwi). At the same time, another significant rally was registered against the Swiss Franc (0.39%), followed by a 0.21% gain against the Euro. The Cable remained relatively unchanged, having surged only 0.08%, but the British currency also sustained a 0.12% loss versus the Japanese Yen.
Retail sales in the UK jumped much higher than expected in April, along with shoppers that put jitters over the outcome of Britain's referendum on membership to the European Union aside to go on a spending spree. Retail sales climbed by 4.3% in April on the year-on-year basis, according to the latest data from the Office for National Statistics. The data was way above the revised 3.0% recorded in the previous month and the 2.5% that was expected by economists.
The figures suggest that the UK economy is poised for mild economic growth in the second quarter, after a sluggish start to the year. The data came a day after the ONS released figures showing an uptick in Britain's employment level and a slightly higher average wage. The number of people in work rose by 44,000 to 31.6 million in the three months to March compared to the previous three-month period, while the jobless rate stayed at 5.1%. Among the factors that have recently weighed on British growth is uncertainty surrounding the UK's future in the EU, with the nation's referendum on the matter due June 23. Bank of England officials say that a vote to exit the union would slow the UK economy and see customers and businesses hold off on spending decisions. Those in favour of leaving the EU, however, say that Britain would ultimately benefit from the chance to negotiate its own trading agreements and regulations.
UK CBI Industrial Order Expectations and US Existing Home Sales
Friday is rather quiet in terms of fundamental data releases, with only the CBI Industrial Order Expectations due at 10:00 am GMT and the US Existing Home Sales due at 14:00 pm GMT. The CBI Industrial Orders Expectations are released by the Confederation of British Industry and are a level of diffusion index, based on surveyed manufacturers. It is a leading indicators of economic health, as the changes in expectations can be an early signal of future economic activity, such as spending, hiring and investment. The US Existing Home Sales, released by the National Association of Realtors, provide an estimated value of housing market conditions. As the housing market is considered as a sensitive factor to the US economy, it generates some volatility for the USD.
GBP/USD attempts to remain above 1.46
The Pound failed to post significant gains against the US Dollar on Thursday, despite the immediate resistance in face of the weekly R2 being retaken. With indicators remaining bearish and the fading bullish momentum, the GBP/USD pair is now expected to undergo a corrective decline. The weekly R2, which now acts as the nearest support, will doubtfully prevent the pair from declining, but the second support area around 1.4480, namely the weekly R1 and the 20-day SMA, is also unlikely to be reached. On the other hand, weak US fundamentals could spark another small Cable buying spree, leading the exchange rate towards around 1.4650.
Daily chart
According to the hourly chart the Cable seems to have lost its bullish potential, as the 1.4650 level remains unconquered. Nonetheless, the overall outlook remains bearish until price climbs over the resistance line, located near the 1.47 mark.
Hourly chart
Bears now in the majority
There are 59% of traders holding short positions today (previously 53%), whereas the portion of buy orders slid from 66 to 61%.
At OANDA market sentiment worsened over the day, as 52% of their open positions are now short, compared to 49% on Thursday. Meanwhile, the sentiment at SAXO Bank slightly improved, as bears now take up 55% of the market, compared to 56% yesterday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.46 in three months
The majority of traders (58%) 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 exactly a quarter (25%) 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 20 is 1.4564.
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."