- 60% of all pending orders are to sell the Pound
- 58% of traders have a positive outlook towards the Sterling
- Immediate resistance is around 1.2650
- The closest support is at 1.25
- Upcoming events: US Monthly Budget Statement, UK CPI, UK PPI Input and Output, UK RPI, UK HPI, US Import Prices
Mood of American shoppers improved markedly in December, following Donald Trump's surprise victory in the US presidency elections, official figures revealed on Friday. The University of Michigan reported its preliminary Consumer Sentiment Index jumped to 98.0, the highest reading since January, while marked analysts anticipated a slighter improvement to 94.3 from November's 93.8 points. Confidence among consumers rose shortly after the elections. The Current Conditions Index, which measures the way consumers feel about the present state of the economy, advanced to 122.1 in December from the preceding month's 117.3 points, the highest level since 2005. A record number of survey respondents pointed to the positive effects of new policies.
Furthermore, the survey showed the proportion of people expecting the economy and labor market to improve next year also increased in the reported month. The gauge of expectations six months from now climbed to 88.9, the highest since January 2015, following the prior month's 85.2 points. Consumers' inflation expectations for the next year declined to 2.3%, the lowest level since 2010, compared with November's 2.4%, while their expectations for inflation over the next 10 years fell to 2.5% from 2.6%.
A calm before the storm
On Monday there is only one relevant event that is likely to have some impact on the GBP/USD pair's performance, namely the US Monthly Budget Statement. It summarizes the financial activities of federal entities, disbursing officers, and Federal Reserve banks. A positive budget statement that receipts exceed budgetary outlays is seen as bullish for the USD. On the other hand, a negative figure that indicates government debt is seen as bearish. On Tuesday attention should be paid to the UK inflation figures.
GBP/USD attempts to retake 1.26
At the end of the previous week the British Pound continued to weaken against the US Dollar, but with the 1.2550 level still providing sufficient support and limiting downside volatility. Since demand around that area remains strong, there is little room left for another decline, suggesting the Sterling could rebound today. Moreover, technical indicators are in favour of the positive outcome. As a result, the GBP/USD pair has a chance to reclaim the 1.26 major level, with the weekly PP at 1.2634 preventing any further bullish development. In case bears manage to push the pair below the mentioned 1.2550 mark, the wedge's trend-line at 1.2511 is expected to remain intact.
Daily chart
The picture on the hourly chart looks rather grim, as the Sterling is was unable to climb over the 200-hour SMA on Friday. This suggests that more bearish momentum could follow, with the wedge's lower border falling into perspective. Consequently, risks of a downside breakout grow higher.
Hourly chart
Traders mostly bullish
There are 58% of traders with a positive outlook towards the Pound today, while 60% of all pending orders are to sell it.
A similar situation is observed elsewhere. For example, 60% of positions open at OANDA are currently long. This is more than the share of shorts (40%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 59% of traders being long and 41% 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 March 12 is 1.2547. Furthermore, the 1.30-1.32 interval is now the most popular one, having 15% of the votes. On the second place in terms of the votes is the 1.28-1.30 (12%) interval, followed also by the 1.18-1.20 and 1.32-1.34 intervals, both with only 10% of the votes. Moreover, 58% all survey participants believe the Cable is to fall above 1.24.