- The share of sell orders slid from 58 to 56%
- 60% of traders have a positive outlook towards the Pound
- Immediate resistance is at 1.2472
- The closest support is around 1.2450
- Upcoming events: US Average Hourly Earnings, US Non-Farm Employment Change, US Unemployment Rate, US Trade Balance
The Bank of England left its key interest rates on hold but revised upwards its growth and inflation forecasts at its monetary policy meeting on Thursday. Policymakers voted anonymously to keep the benchmark rate unchanged at 0.25%, which was cut in August. Furthermore, the Central bank kept its corporate and government bond-purchase programs unchanged at 10 billion and 435 billion pounds, respectively. Meanwhile, the 2017 inflation forecast was revised up to 2.7% from 2.0% estimated in August, following the weak British Pound. However, inflation is expected to cool down by the end of 2019, falling to 2.5% and further. The 2016 GDP forecast was revised up to 2.2% from August's 2.0%, supported by the stronger than expected household spending, rebound in the housing market and improvements in both business and sentiment indicators despite the uncertainty caused by the Brexit vote.
Moreover, the Bank of England revised up its GDP growth projections for 2017 to 1.4% from the previous estimate of 0.8%. The Bank noted that output growth is expected to be stronger in the near-term but weaker than previously estimated. Therefore, the 2018 GDP forecast was revised down to 1.5% from August's estimate pf 1.8%.
US NFP data is the main event
Once again the US NFP data is due. The Non-Farm Payrolls present the number of new jobs created during the previous month, in all non-agricultural business. The monthly changes in payrolls can be extremely volatile, due to its high relation with economic policy decisions made by the Central Bank. The number is also subject to strong reviews in the upcoming months, and those reviews also tend to trigger volatility in the forex board. Generally speaking, a high reading is seen as positive for the USD, while a low reading is seen as negative, although previous months reviews and the unemployment rate are as relevant as the headline figure, and therefore, market's reaction depends on how the markets assets them all. The Unemployment Rate is a percentage that surges from dividing the number of unemployed workers by the total civilian labor force. It represents the percentage of people actively seeking employment and willing to work. Usually, a higher rate is seen in recessionary economies, while on the contrary, a growing economy sees its unemployment rate decreasing. Therefore, a decrease of the figure is seen as positive for the USD, while an increase is seen as negative, although by itself the number cannot determinate the markets move as it depends on the headline reading, the NFP. Another important event is the Average Hourly Earnings. Average Hourly Earnings is a significant indicator of labor cost inflation and of the tightness of labor markets. The Federal Reserve Board pays close attention to it when setting interest rates.
GBP/USD in limbo ahead of US NFP data
Due to the upbeat UK statement and the High Court's decision yesterday, the British Pound received a solid boost, adding more than 150 pips against the US Dollar. The Cable met resistance only at 1.2472, where there weekly R3 is located and which keeps providing immediate resistance today. Consequently, a corrective decline is quite possible today, but with a rather weak US NFP reading expected, the Sterling has the potential to post more gains and easily reclaim the 1.25 major level. On the other hand, a fall back under 1.24 is possible if bears take over the market. Meanwhile, technical studies are unable to confirm either scenario.
Daily chart
The outlook remains unchanged, with the GBP/USD pair expected to continue climbing up ahead of the US presidential elections. Currently, the Cable is trading close to a one-month high just under 1.25. Once this level is overcome, the Sterling will be expected to move towards 1.2617, the level before a sharp sell-off in October occurred.
Hourly chart
Traders mostly bullish
There are 60% of traders with a positive outlook towards the Pound today (previously 63%). The share of sell orders slid from 58 to 56%.
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 57% of traders being long and 43% 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 04 is 1.2165. Furthermore, the 1.18-1.20 interval is now the most popular one, having 21% of the votes. On the second place in terms of the votes are the 1.16-1.18 (13%) and the 1.20-1.22 (13%) intervals, followed also by the 1.14-1.16 with only 10% of the votes. Moreover, 73% all survey participants believe the Cable is to fall under 1.26.