Britain's trade deficit narrowed slightly less than expected in July, official figures revealed on Friday. According to the UK Office for National Statistics, the country's total trade gap shrank to 4.5 billion pounds in July, compared to the preceding month's upwardly revised gap of 5.6 billion pounds, whereas market analysts expected Britain's trade deficit to narrow to 4.1 billion pounds in the reported month. Exports of goods and services increased 2% to 43.8 billion pounds, while imports dropped 0.5% to 48.3 billion pounds in July. In the meantime, the UK's visible trade deficit shrank to 11.8 billion pounds in the seventh month of the year, following June's upwardly revised gap of 12.9 billion pounds, while economic desks penciled in a fall to 11.7 billion pounds. Although the British Pound dropped markedly following the country's decision to leave the European Union, the ONS stated in its report that it was far too early to assess the Brexit impact on exports that were projected to grow sharply amid the weaker Sterling.
Back in July, the British Pound was 15% lower against other major currencies, compared with the same period last year. The narrowing of Britain's trade deficit offered some hope that the economy will continue to expand in the Q3 of 2016, despite earlier recession fears.
Where the UK economy is headed?
GBP/USD heads to 1.32
The Cable keeps retreating after it topped out at 1.3450, and the rate is likely to fall some 70 pips more before we see a recovery back to the upper bound of the channel. At the moment GBP/USD is testing a support trendline at 1.3270, which has been recently broken, but still could prove to be useful. Once the bulls regain control, the first target will be at 1.3320, while a more serious test of the bullish momentum is to happen at circa 1.34, where the monthly R1 coincides with the August high, Bollinger band and weekly R1 level.
Daily chart
Hourly chart
Bulls and bears in equilibrium
There has been a noticeable change in traders' attitude towards the Sterling over the weekend. There are now significantly less short positions than there were on Friday—their share fell from 57 to only 51%, meaning the sentiment is now neutral. As for the orders, 45% of all orders are to purchase and 55% are set to sell the Pound against the US Dollar.
Sentiment is now neutral elsewhere as well. Compared to what we saw before the weekend, the share of bulls at OANDA increased from 46 to 50%. The portion of longs at Saxo Bank went from 47 to 48%.
Spreads (avg, pip) / Trading volume / Volatility
Traders' forecasts remain stable
Traders have not materially changed their view on GBP/USD since the beginning of July, with the average forecast fluctuating slightly in the range between 1.32 and 1.30 dollars. However, the actual percentage of people who voted for this interval is only 5%, and merely 11% of traders voted for the 1.30-1.34 interval, where the currency pair has been trading since the beginning of July. The most popular answer choice was the 1.36-1.38 interval, which was chosen in 15% of cases. At the same time, 43% of traders expect the Cable to be above 1.34 and 47% of traders expect the rate to be below 1.30 in three months.