- The portion of buy orders surged from 39 to 65%
- 53% of all open positions are long
- Notable demand area is at 1.2888/1.2880
- A strong resistance cluster is around 1.3140
- Upcoming events: UK Public Sector Net Borrowing, US Crude Oil Inventories, FOMC Statement, US Federal Funds Rate
US housing starts dropped more than expected last month, official figures revealed on Tuesday. According to the US Department of Commerce, housing starts declined 5.8% to a seasonally adjusted annual pace of 1.14 million units in August, following the preceding month's 1.21 million-unit rate and falling behind the 1.17 million-unit pace market forecast. Starts of single family houses declined 6.0% to a 722,000 unit rate in August, the lowest level since October of 2015, whereas housing starts for the volatile multi-family segment dropped 5.4% to a 420,000 unit pace.
In the meantime, building permits plunged 0.4% in August to a seasonally adjusted rate of 1.14 million units as approvals in the volatile multi-family segment fell 7.2% to a 402,000 unit-pace, whereas permits for single–family homes jumped 3.7% to a 737,000 unit-rate last month. Market analysts expected permits for future construction to hit 1.17 million units in the reported month. In regional terms, single-family new house construction building permits fell in both the Northeast and South 13.8% and 13.1%, respectively, but increased in the West and Midwest. After the release, the US Dollar fell slightly, trading at 1.1182 against the Euro, 1.2967 against the British Pound and 101.83 against the Japanese Yen.
UK Public Sector Net Borrowing and Fed's Interest Rate Decision
Wednesday is a rather important day for the Cable, despite from the UK side only one event being due, namely the Public Sector Net Borrowing. It is the difference in value between spending and income for central and local governments, as well as public corporations. A positive number is considered to be negative (bearish) for the Pound, whereas a negative number as bullish, indicating a surplus. Although the impact is somewhat limited, it tends to provide some insight concerning the economic situation in the country. Nevertheless, all attention today falls on the Fed's Interest Rate Decision and its Monetary Policy Statement. With a pre-set regularity, a nation's Central Bank has an economic policy meeting, in which board members took different measures, the most relevant one, being the interest rate that it will charge on loans and advances to commercial banks. In the US, the Board of Governors of the Federal Reserve meets at intervals of five to eight weeks, in which they announce their latest decisions. A rate cut, on the other hand, is seen as a sign of economic and inflationary woes and, therefore, tends to weaken the local currency. If rates remain unchanged, attention turns to the tone of the FOMC statement, and whether the tone is hawkish, or dovish over future developments or inflation. This is the case today, as rates are largely forecasted to remain unchanged during today's meeting.
GBP/USD: key support in focus
Even poor US Building Permits yesterday could not provide the GBP/USD with sufficient strength to keep the pair from falling back under 1.30. With the breach of this major level the Cable falls under the risk of edging lower towards the key support area around 1.2885. This level is important, as not only the weekly S1 coincides there with the monthly one, but also with the support line, which kept the Sterling elevated since its sharp post-Brexit slump. Technically, a decline should be limited by this cluster of supports today; not only that, but an anticipated Fed's dovish statement could also be a catalyst for the exchange rate to negate Tuesday's losses.
Daily chart
On the hourly chart the Cable is on the edge of forming a descending channel pattern, but the lower boundary requires an additional confirmation for the pattern to be fully realised. If it indeed proves to be viable, we should see the price rebound and begin moving towards 1.31.
Hourly chart
Traders remain undecided
Bulls are barely outnumbering the bears, as 53% of all open positions are long. The portion of buy orders, however, surged from 39 to 65%.
A different situation is observed elsewhere. For example, 67% of positions open at OANDA are currently long. This is more than the share of shorts (33%), sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 69% of traders being long and 31% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect no major changes
By the end of the next three months traders expect the Cable to be more or less at the same level where it is now. While the current price is around 1.30, the average forecast for December 21 is 1.3172. Interestingly enough, however, the 1.30-1.32 interval is not the most popular one, along with 1.34-1.36 and 1.24-1.26, having only 10% of the votes each. Most of the votes are concentrated in 1.28-1.30 (15%) and 1.36-1.38 (14%) intervals.