- The share of buy orders slid from 55 to 44%
- 52% of all positions are now short
- 20% of the poll participants expect the British Pound to cost between 1.60 and 1.62 dollars after a three-month period
- Immediate resistance lies in face of the weekly R1 at 1.5638
- The nearest support rests around 1.5594, represented by the monthly PP
- Upcoming events today: US Advance GDP, US Goods Trade Balance, US Jobless Claims, US Advance GDP Price Index, US Natural Gas Storage, UK GFK Consumer Confidence
The Sterling was one of the best-performing currencies on Wednesday, as it advanced against most major peers, with exception against the US Dollar. The Pound added the most versus the Kiwi (0.80%), the Euro (0.70%), the Aussie (0.65%) and the Swissie (0.55%), following with lesser gains of 0.24% and 0.10% versus the Yen and the Loonie, respectively. However, the British currency remained relatively unchanged against the Greenback, losing 0.06%.
Growth of British annual sales weakened in July, despite a big surge in clothing purchases, the Confederation of British Industry reported. The CBI distributive trades survey's retail sales balance dropped for a second straight month after sliding to the lowest level in five months in May, declining to +21 in July, compared with +29 in the prior month, falling short of economists' forecasts for a modest rise to +30. The outlook for sales in August was even gloomier, with the corresponding gauge declining to a two-year low of +13 from +33. According to the latest official data, retail sales, both including and excluding fuel, decreased 0.2% between May and June. Despite the continuous quarterly growth, total retail sales volumes slowed during the April-June period to 0.7%, down from 0.9% in the first three months of the year. .
The retail sector and overall domestic consumption in the UK has been considered one of the key drivers for the economy. Expectations for domestic spending in the country have been mixed recently, with some analysts warning it could weaken even further once the Bank of England starts to hike its benchmark interest rate from the record low of 0.5%, given the burden of household debt and rising house prices. A separate report showed net lending to individuals and households rose more than expected in June, reflecting increased demand for credit. The BoE said total net lending to individuals increased by 3.8 billion pounds last month, up from 3.5 billion pounds in April.
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 be a story of Dollar strength rather than Sterling weakness.
US Advance GDP & Goods Trade Balance
From the UK side there will be no significant data releases today; however, from the US side a number of high-impact releases are scheduled for today at 12:30 PM GMT. The most important one is the US GDP First Release, which is expected to have a high impact on the US Dollar, since it is the earlier GDP Estimate. The GDP is forecasted to show significant signs of improvement, although the actual growth pace might turn out to be smaller. Furthermore, the US Jobless Claims are expected to rise again today. Even though it tends to have a smaller impact on the US crosses, it still indicates labor market conditions in the US, thus, providing the Fed with more information, based on which they decide whether to raise or hold interest rates. The final event is the Goods Trade Balance. It is important because it is the event's first data release. Trade in goods makes up approximately three quarters of total trade and provides insight into the US Trade Balance, which is due next week. This event's effect on the US currency might be unpredictable and somewhat unexpected.Ross Walker, economist at Royal Bank of Scotland Group, suspects that GBP/USD may descend to 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross 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 stable above 1.56; risks of plunging remain
The Cable declined on Wednesday less than expected, as the pair closed trade in front of the immediate support, namely the monthly PP. The Sterling is expected to rebound today and erase last week's losses. The weekly R1 is still the nearest resistance; however, we should not rule out the possibility of a slump towards the support cluster around 1.5545 if the US fundamentals show signs of improvement and, thus, boost the US currency. Nonetheless, the GBP/USD pair's overall bullish trend remains intact and the technical studies support that.
Daily chart
After reaching a daily high of 1.5690, the GBP/USD currency pair began sliding down. However, the Cable failed to reach the 200-hour SMA at around 1.5570, as the 1.56 major level provided support and kept the Sterling from edging lower. In case losses occur today, the 200-hour SMA is expected to limit them, although the 1.56 area might still push the Pound back up.
Hourly chart
Bulls and bears are equally divided
Market sentiment weakened again, as 48% of all positions are now long. Meanwhile, the share of buy orders slid from 55 to 44%.
Other market participants now have a different outlooks towards the GBP/USD. The SAXO Group traders' sentiment worsened once more, as 57% of all their positions are now short. At the same time, OANDA's market sentiment remains unchanged in a perfect equilibrium.
Spreads (avg, pip) / Trading volume / Volatility
20% of the poll participants expect the British Pound to cost between 1.60 and 1.62 dollars after a three-month period
According to the survey conducted between June 30 and July 30, 20% of traders assume the GBP/USD currency pair will cost between 1.60 and 1.62 dollars within three months. However, the second place is taken by the 1.58-1.60 price interval, selected by 14% of the surveyed. The mean forecast for October 30, on the other hand, is 1.5689.
Traders' predictions changed dramatically from the previous week, as now 71% of Dukascopy Community members are predicting the pair to decline. Alongside, the average forecast for the end of the week is placed around the 1.554 level.
From the larger [bearish] side, Rivan, one of the community members, stated that in his opinion the Economic data is not strong enough to support the hawkish BoE, therefore, he expects the US Dollar to outperform the Sterling by the end of the week. However, there are those with an optimistic view towards the Cable, namely Tommaso, another member of the Dukascopy community. "The bullish trend line seems still intact and can reach 1.5775 level." He also mentioned that the Dollar and British Pound are showing the same strength, thus, only really important economic releases can reverse the bullish trend.