GBP/USD rebounds from 1.55

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Source: Dukascopy Bank SA
  • The gap between the amounts of long and short positions remains the same - 16 percentage points/li>
  • GBP/USD is eroding the down-trend at 1.555
  • GBP/USD is approaching the apex of the falling wedge pattern
  • Upcoming events: US Consumer Confidence next Tuesday

© Bloomberg
As it turned out, the British Pound failed to capitalise on the positive news. The currency underperformed relative to all its major counterparts except for the US Dollar. The Sterling lost 0.37% against the Japanese Yen and 0.24% agains the Euro.

Productivity in the British labour market rose in all major sectors. This should provide the Bank of England with some relief as an increased productivity coupled with rising wages should limit any significant upward inflationary pressures. UK labour output picked up by 0.6% in the three months through September, the biggest advance in more than three years, although it remains below pre-financial crisis levels, according to the Office for National Statistics. Labour market productivity in the UK, which is measured by output per hour, rose 0.3% compared with the same period in 2013, but it remains 2% below its level in 2008, which is likely to restrain real wage growth. Productivity improved in all of the main sectors of the UK economy in the September quarter, by 0.5% and 0.6% in the production and the service industries, respectively.

The relationship between wage growth and productivity is crucial to inflation forecasting at the BoE. Wage growth, just like production, has been very slow in the last six years. Total pay, which includes bonuses, increased 1.4% in quarter to October while regular pay, excluding bonuses, rose by 1.6%, both above the current level of consumer-price inflation. Low inflation keeps the BoE firmly dovish. For the majority of the Monetary Policy Committee, the outlook for inflation justifies keeping the current level of interest rates.

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No significant UK-related releases until next Friday



The next notable release concerning the well-being of the United Kingdom will be published on Jan 2, when Markit will be expected to report growth in the manufacturing sector of the economy. However, the volatility in GBP/USD is likely to retun earlier, on Dec 30, when we will get an update on the consumer confidence in the USA.


GBP/USD rebounds from 1.55

According to Jean-Francois Owczarczak, the director of Fingraphs.com, 1.55 level is an important support for GBP/USD. And a breach of this point is going to open more downside potential for the pair. But for now the monthly S1 managed to push the Cable away from 1.55. Considering there are no notable resistances nearby, the rally is well-positioned to develop further, until it reaches a down-trend at 1.565. There the currency will be expected to come under significant pressure, and this is likely to result in a test of the falling support line at 1.54. But a bullish break-out should not be ruled out — GBP/USD is approaching the apex of the falling wedge pattern.

Daily chart

© Dukascopy Bank SA

Meanwhile, on the hourly chart GBP/USD is eroding the down-trend at 1.555, which has been intact since Dec 16. Once it is broken, the pair will be in a good position to target a formidable resistance at 1.56, which is reinforced by the 200-hour SMA. The next major resistance will already be a long-term down-trend at 1.5650.

Hourly chart
© Dukascopy Bank SA

Read More: Technical Analysis

Sentiment stands bullish, but more traders plan to sell

The gap between the amounts of long and short positions is more or less the same as on Wednesday, namely 16 percentage points. A similar bullish sentiment among the traders is observed at OANDA (59/41) and at SAXO Bank (60/40).

The difference between the buy and sell orders, on the other hand, has grown from 20 to as many as 34 percentage points since the last report.















Spreads (avg,pip) / Trading volume / Volatility



Community expects Pound to slide lower

© Dukascopy Bank SA
In course of this working week, Dukascopy Community members forecast the GBP/USD pair to drop further, as almost 58% of all votes stay bearish. As predicted by traders, the Cable may close around the 1.5640 level this Friday. Britain's Final GDP for Q3 has already been announced, as it rose 0.7%, in line with estimates. Among American news, a sharp drop in sales of existing homes by 6.1% in November is predicted to have a medium-term impact on the Cable. The most part of US will be published on Tuesday, including Final GDP, durable goods orders and new home sales.


Community member khalidamassi considers the fact that GBP/USD is still trading above 1.555 as positive, but does not expect the volatility to elevate because of the holidays. Jignesh, on the other hand, has a different opinion, saying that "bears will be looking to take over again this week, on the back of a hawkish FOMC statement from the last week. First targets will be recent lows coming in at 1.5540". At the same time he sees the resistance at 1.5680/60.
© Dukascopy Bank SA

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