- The share of sell orders dropped from 66 to 59%
- 71% of all open positions are still long
- Immediate resistance is at 1.2528
- The closest support is around 1.24
- Upcoming events: UK Public Sector Net Borrowing, US Existing Home Sales, US Durable and Core Durable Goods Orders, FOMC Meeting Minutes
British retail sales grew at the fastest pace since 2002 in October, helped by colder weather and Halloween, official figures revealed on Thursday. According to the Office for National Statistics, total sales volumes rose 1.9% last month, following the preceding month's upwardly revised gain of 0.1% and surpassing the 0.5% increase forecast. On an annual basis, retail sales climbed 7.4% in October, posting the strongest pace since April 2002. The October figures provide further evidence that consumer confidence stays relatively intact after the Brexit vote. Retail sales data tend to be extremely volatile month-over-month; however, they grew 5.9% in the three months to October compared to a year ago. Clothing sales increased 5.1% on a monthly basis, the largest gain since March 2014.
Nevertheless, earlier this week Mark Carney, Governor of the Bank of England, said that prices will rise markedly in the upcoming months amid the steep fall in the value of the Sterling. Moreover, the Bank of England now expects inflation to hit 2.7% next year. After the release, the British Pound rose to $1.2507 before falling back to $1.2480. Against the Euro, it advanced to 85.77 before declining back to 85.93.
No significant events until Wednesday
Tuesday is relatively quiet, but some attention could be paid to the US Existing Home Sales. They 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. The main events, however, will be on Wednesday, namely the US Durable and Core Durable Goods Orders. They measure the cost of orders received by manufacturers for durable goods, which means goods planned to last for three years or more, such as motor vehicles and appliances. As those durable products often involve large investments they are sensitive to the US economic situation. The final figure shows the state of US production activity. The Core Durable Goods Orders, however, the transport sector in order to capture a more accurate calculation. Nevertheless, the most important event on Wednesday will be the FOMC Meeting Minutes. FOMC stands for the Federal Open Market Committee, that organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses and 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 in tight range between 1.24 and 1.25
The British currency was boosted by the UK's new Prime Minister's comments concerning ‘Brexit', causing the Cable to negate almost all previous week's losses. The political factor was not anticipated, but, nonetheless, the pair successfully reached the 1.25 major level again yesterday, implying more Sterling-buying could be on the way. However, technical studies are now giving mixed signals, suggesting that the recent reversed trend, namely bearish, has a solid chance of prevailing. In this case the main target will still be the cluster circa 1.24, represented by the 20-day SMA, the weekly and the monthly PPs.
Daily chart
With yesterday's unexpected rally, the GBP/USD currency pair easily breached the possible trend-line and even pierced the 200-hour SMA, forming solid ground for more bullish momentum in the upcoming days. However, bulls could still experience difficulties and setbacks, as the 1.25 psychological level appears to be providing strong resistance.
Hourly chart
Traders mostly bullish
The Pound remains overbought, as 71% of all open positions are still long today. At the same time, there are slightly less orders to sell the Sterling, as their share dropped from 66 to 59% over the day.
A similar situation is observed elsewhere. For example, 59% of positions open at OANDA are currently long. This is more than the share of shorts (41%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 65% of traders being long and 35% 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 22 is 1.2316. Furthermore, the 1.18-1.20 interval is now the most popular one, having 17% of the votes. On the second place in terms of the votes is the 1.26-1.28 (14%) interval, followed also by the 1.16-1.18 and the 1.20-1.22 intervals with only 13% of the votes each. Moreover, 60% all survey participants believe the Cable is to fall under 1.24.