- The number of orders to sell the Pound edged up from 58 to 65%
- 69% of traders hold long positions
- Immediate resistance is around 1.2245
- The closest support is at 1.2138
- Upcoming events: US GDP, US GDP Price Index, Reuters/Michigan Consumer Sentiment, Personal and Core Personal Consumption Expenditures
The British economy expanded more than expected in the Q3 despite the Brexit vote, official figures revealed on Thursday. According to the UK Office for National Statistics, the economy grew 0.5% during the July-September period, compared to the preceding quarter's 0.7% growth pace, while market analysts expected the UK's Gross Domestic Product to advance 0.3% in the reported quarter. The Bank of England is now likely to leave its benchmark rate unchanged when it meets next week. After the stronger than expected data release, the British Pound hit its one-week high against the Greenback, trading at $1.2266.
Furthermore, British 10-year government bond yields jumped to their highest level since the EU referendum. The Q3 growth was mainly driven by the services industry, which in its turn was helped by the film and television sector as the latest films in the Bourne and Star Trek series were released in July along with other blockbusters. On an annual basis, the economy grew 2.3%, the highest growth rate the UK experienced in more than a year. However, some analysts remain cautious, suggesting that there may be a delayed impact from the vote. Moreover, inflation is projected to rise to around 3% in 2017 amid the weak British Pound.
US GDP Annualized is the main event today
There is no important fundamental data releases from the UK today, thus, all attention shifts to the US figures, with the most anticipated one being the US GDP Annualized. It shows monetary value of all the goods, services and structures produced within a country in a given period of time. GDP Annualized is a gross measure of market activity, because it indicates the pace at which a country's economy is growing or decreasing. Another important release will be the GDP Price Index. It gauges the change in the prices of goods and services. Changes in the GDP Price Index are followed as an indicator of inflationary pressure that may anticipate interest rates to rise. Finally, the US Personal Consumption Expenditures, which measure price changes in consumer goods and services. Personal Consumption Expenditures consist of the actual and imputed expenditures of households; the measure includes data pertaining to durables, non-durables and services. It is essentially a measure of goods and services targeted toward individuals and consumed by individuals. Meanwhile, the Core Personal Consumption Expenditures is also considered as an important indicator of inflation.
GBP/USD gravitates to 1.22
The British currency weakened against the US Dollar on Thursday, but remained in its intraweek trading range, namely between the weekly S1 from the downside and the monthly S3 from the upside. Today the Sterling is expected to remain within this range and receive a boost from the weak US GDP reading. Meanwhile, technical indicators somewhat confirm this outlook, as they keep giving mixed signals in all timeframes. However, there is always a risk of the US data surprising to the upside, which would cause the Cable to fall back to at least 1.21, with the next target being the weekly S2 at 1.2040.
Daily chart
The Cable has been trading sideways for two weeks now, with the 1.2115 level representing the lower border and the 1.2330 – the upper one. The exchange rate's location closer to the trading range's lower boundary only increases the chances of the pair rebounding today, which would confirm the daily outlook.
Hourly chart
Traders mostly bullish
Market sentiment remains strongly bullish, with 69% of traders holding long positions today (previously 68%). At the same time, the number of orders to sell the Pound edged up from 58 to 65%.
A similar situation is observed elsewhere. For example, 65% of positions open at OANDA are currently long. This is more than the share of shorts (35%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 66% of traders being long and 34% 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 higher than the level where it is now. While the current price is around 1.23, the average forecast for January 28 is 1.2433. Furthermore, the 1.18-1.20 interval is now the most popular one, having 15% of the votes. On the second place in terms of the votes are the 1.16-1.18 (12%) and the 1.20-1.22 (12%) intervals, followed also by the 1.28-1.30 with 10% of the votes. Moreover, 76% all survey participants believe the Cable is to fall under 1.30.