- 61% of all pending orders are to sell the British currency
- 64% of traders have a positive outlook towards the Sterling
- Immediate resistance is at 1.2544
- The closest support is around 1.24
- Upcoming events: UK Average Earnings Index, UK Claimant Count Change, UK Unemployment Rate, US PPI, US Core PPI, US Capacity Utilization Rate, US Industrial Production, US Crude Oil Inventories
British consumer prices dropped unexpectedly last month, despite the steep fall in the value of the British Pound after the Brexit vote, official data showed on Tuesday. According to the Office for National Statistics, the Consumer Price Index advanced 0.9% year-over-year in October, compared to the preceding month's 1.0% rise. That was below the 1.1% market forecast, who suggested that the weak Sterling would lift inflation last month. Nevertheless, the ONS said factory gate prices increased 2.1%, faster than expected and the largest increase since April 2012. Furthermore, the Producer Price Index jumped 4.6% on a monthly basis in the reported month, after rising just 0.1% in the previous month, whereas economists penciled in an increase of 1.6%.
Meanwhile, the Retail Price Index came in at 2.0% in October, unchanged from the same month one year ago. In addition, the ONS reported the so-called core inflation rate declined to 1.2% from September's 1.5%, falling behind analysts' expectations of 1.4%. UK inflation remained below the Bank of England's target of 2% for almost three years already. According to the Bank of England's latest inflation forecasts published earlier this month, UK inflation is expected to climb to 2.7% by this time next year.
Most focus is on the US fundamentals today
From the UK side only the Claimant Count Change and the Unemployment Rate are due, but they are unlikely to have a significant impact on the Cable's performance. The main events are from the US side, such as the PPI. 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. Another important event will be the Industrial Production, which shows the volume of production of US industries such as factories and manufacturing. Up-trend is regarded as inflationary, which may anticipate interest rates to rise. Further is the Capacity Utilization Rate. It is the percentage of the US production capacity, which is actually used over the short-time period. It is indicative of overall growth and demand in the US economy. Finally, the NAHB Housing Market Index, as it may have some impact as well. It presents home sales and expected home buildings in the future, indicating housing market trend in the US. The growth rate of the housing market affects the USD volatility.
GBP/USD in tight range between 1.24 and 1.2550
The breakout from the rising wedge pattern occurred earlier than anticipated, being that the Cable edged lower on Tuesday. As a result, the monthly PP was put to the test, as was anticipated, but with trade closing at 1.2457, thus, allowing the cluster circa 1.2380 to retain its role of the key support area. Furthermore, due to the breach of the wedge, the GBP/USD pair risks falling deeper down. Moreover, technical studies are no longer giving bullish signals, creating a possibility for the bearish momentum to take over. On the other hand, there is a chance for a small correction take place, but with the weekly PP, the nearest resistance, remaining intact.
Daily chart
On the hourly chart the Cable is also seen breaching the rising wedge pattern to the downside, despite it being bolstered by the 200-hour SMA. Even though the pair appears to be recovering at the moment, risks are still skewed to the downside, as the bearish momentum usually prevails after rising wedges' support lines are broken.
Hourly chart
Traders mostly bullish
There are 64% of traders with a positive outlook towards the Sterling today, while 61% of all pending orders are to sell the British currency.
A similar situation is observed elsewhere. For example, 62% of positions open at OANDA are currently long. This is more than the share of shorts (38%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 60% of traders being long and 40% 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 1.24, the average forecast for November 16 is 1.2242. Furthermore, the 1.18-1.20 interval is now the most popular one, having 20% of the votes. On the second place in terms of the votes is the 1.16-1.18 (15%) interval, followed also by the 1.14-1.16 and 1.20 and 1.22 intervals with only 11% of the votes each. Moreover, 72% all survey participants believe the Cable is to fall under 1.26.