- The number of buy orders increased from 53 to 56%
- Bulls returned to last Friday's level of 45%
- 53% of forecasts for Aug 28 are below 1.56
- Closest resistance is at 1.5366, the weekly S1
- Nearest support is at 1.5260, represented by the weekly S2
- Upcoming events today: G7 Meeting, UK GDP, UK Preliminary Business Investment, US Unemployment Claims, US Pending Home Sales, US Crude Oil Inventories
The British Pound suffered substantial losses on Wednesday, with exception against the Yen. The Sterling lost the most against the Kiwi (0.69%) and the Swiss Franc (0.63%), following with a 0.49% decline versus the Euro, 0.20% versus the US Dollar and 0.12% versus the Aussie. The Pound remained relatively unchanged against the Canadian Dollar (-0.06%), whereas gains of 0.26% were detected against the Yen.
UK retail sales growth soared in May, while the expectations for the next month's sales hit the highest level in almost 27 years. The Confederation of British Industry's retail sales balance surged to +51 in the current month, far overshooting economists' expectations for +17, and compared with +12 in April. The indicator of expected sales for June jumped to +58, the highest level since September 1988, and up from +40 in May. The survey showed the volume of orders expected to be placed with suppliers next month increased to its highest since September 1996. According to the latest official data, UK retail sales, both including and excluding fuel, rose more than expected in the beginning of the second quarter as sales in clothing and footwear reached the highest level in four years.
Quarterly data also published by the CBI indicated that retailers' overall assessment of the business situation improved to +20, the highest mark since last August, up from +11 in February. CBI also expected British inflation to remain below 1.0% for the rest of the year. The official consumer price index dropped by 0.1% in the year to April 2015, for the first time since 1960. Yet, a steady growth in the retail sector suggests consumers in the UK do not tend to postpone major purchases due to expectations that prices will continue to decline further in the future – a phenomenon called a deflationary spiral.
Paul Bednarczyk, head of research at 4CAST, is optimistic with respect to the world's largest economy over the coming months, saying that "we should be seeing some better US numbers coming through," which will lead the Cable to 1.54. Meanwhile, the analyst considers that "over the next three months Sterling will perform well on a trade-weighted basis," but GBP/USD is still likely to decline to 1.4850. In the longer-term perspective, Bednarczyk is also bearish, setting his 12-month forecast at 1.42, which will rather be a story of Dollar strength rather than Sterling weakness.
G7 Meeting, UK GDP and US Jobless Claims
The only even that concerns both, the UK and US economy is the G7 Meeting today, where the leaders will discuss the global economic growth as well as foreign, security and development policies. However, this is just a calm before the storm, as today the UK GDP is expected to increase, compared to the previous quarter, while the Unemployment Claims are likely to decrease. Both data releases prospect to strength their countries' currencies and a lot will be dependent on secondary data, as the main events' forecasted changes are rather insignificant to shift the Cable's exchange rate in either direction.
Ross Walker, economist at Royal Bank of Scotland Group, shared his view on the short-term forecast for the Cable. He mentioned that GBP/USD has a moderate sell-off and that it could be down to high 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross also mentioned that "the main driver in many ways, as well as the main support in recent times have been the expectations that the Bank of England will raise interest rates at some point next year, probably the beginning 2016."
GBP/USD stuck between 1.52 and 1.54
The Cable keeps falling for the second week in a row, as the Sterling declined again versus the Greenback yesterday. The pair attempted to edge higher, but the 200-day SMA pushed it all the way down to 1.53 psychological level. However, the weekly S1 managed to provide some support, as the Pound settled at 1.5350. A rebound is likely to take place today, with the Cable closing trade around 1.5450. Nevertheless, we should not rule out the possibility of a slump down to 1.52 if the fundamental data disappoints, while technical studies retain mixed signals.
Daily chart
Despite the Cable's rally in the early morning hours yesterday, the trade still closed with the Pound weakening against the US Dollar. The situation appears to be repeating itself today, as a correction began at the end of the day and persisted through the morning hours today. As a result, we should see more weakness if the trend is confirmed..
Hourly chart
Bears keep prevailing over bulls
Bulls returned to last Friday's level of 45%, whereas the number of buy orders increased from 53 to 56%.
The SAXO Bank traders' sentiment remains bearish. Only 43% of their clients hold long positions. Meanwhile, the sentiment among OANDA traders remains unchanged and is equal to the SAXO Bank's one, as only 43% of the positions are long.
Spreads (avg, pip) / Trading volume / Volatility
20% of traders expect the British pound to cost between 1.48 and 1.50 dollars in three months
The mean forecast for August 28 is 1.5543. However, votes are slowly shifting to the upside, as only 53% of traders now expect the Sterling to cost less than 1.56 dollars in three months. The most popular price range remains the same, 1.48-1.50, chosen by 20% of the survey participants. The second most popular choice is now between 1.60 and 1.62, selected by 14% of the surveyed.
During October 13-17 time period, Dukascopy Community members forecast the currency pair to lose value, as 60% of all votes are bearish for the current trading week.
One of the community member and, apparently, a fan of The Matrix, who goes by the nickname AgentSmith, holds a bullish outlook towards the Cable. He comments that the election results in the UK had a very positive effect on the British Pound. "I am very long on the Pound, particularly on the crosses where there is more value" – he said. His rival, aslamhammad, who will further be referred to as Mr. Anderson still has a bearish outlook towards the GBP/USD. He expects the pair to exchange lower by this Friday, as the price is currently trading near a psychological level. As a result, "if price breaks below 1.5400, I'm expecting price to continue to the downside", Mr. Anderson commented.