- The share of buy orders slid from 58 to 53%
- 51% of all positions are now long
- 14% of the poll participants expect the British Pound to cost between 1.58 and 1.60 after a three-month period
- Immediate resistance lies in face of the 20-day SMA and weekly PP around 1.5685
- The nearest support rests around 1.5559, represented by the monthly PP
- Upcoming events today: UK CPI and Core CPI, UK PPI Input, UK RPI, US Building Permits, US Housing Starts
The Sterling declined against most major peers yesterday, amid the looming inflation report today. As a result, the Pound lost 1% versus the Kiwi, following with 0.48%, 0.46% and 0.43% losses versus the Aussie, the Loonie and the Greenback, respectively. The British currency held most resilient against the Euro, having lost only 0.26%.
UK construction output rebounded in June, recovering from a slowdown recorded in April and May. According to the Office for National Statistics, output inched up 0.2% in the second quarter from the previous three-month period, beating expectations for an unchanged output. The stronger June performance helped the overall second-quarter growth. The largest upward pressure on the quarterly growth came from a steep rebound in private housing projects, increasing 3.9% from a drop of 0.8% in the previous three months. This partly reflects a post-election rise in the British housing market coupled with a strong demand for new houses. Private housing output also inched up on a monthly basis in June, up 0.3% from a plunge of 2.7% a month before. Measured on a monthly basis, output in the construction sector surged 0.9% in June from a month earlier, following the 1% decline. On the year, output in June was 2.6% higher, below economists' forecasts of a 3.3% rise but still the fastest growth since March.
According to the Markit/CIPS PMI data, business activity in the UK construction unexpectedly decelerated to 57.1 last month, from a four-month peak of 58.1 in June. This was mainly due to weaker activity in the residential building sector, which was the second slowest since mid-2013. Yet, the sub-sector remained the strongest from within the overall output, according to the PMI report.
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.
UK CPI and US Building Permits
The most important event from the UK side today is the CPI. The CPI is the index that shows the change in price of goods and services acquired by consumers. An increase in the given inflation would mean that the BoE could be one step closer to raising interest rates, therefore. Although the CPI is expected to remain unchanged, there is a possibility of a slight hike. From the US side attention should be paid to the Building Permits data release. The Building Permits is a gauge of future construction activity, as it obtaining a permit is the first step of beginning construction. The number is forecasted to fall, but according to historical data, expectations might be exceeded to the upside, thus, pressuring the GBP/USD down.
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 falls ahead of inflation data
The Cable tested the 1.5670 resistance area, which in turn pushed it back, forcing to pierce the immediate support. As a result, the Sterling dropped as low as 1.5581, namely the 20-day SMA, now located under a rather strong resistance cluster. The GBP/USD currency pair is expected to suffer more weakness, decline towards the support trend-line at 1.5540 and rebound afterwards. However, the trend-line risks being pierced if the UK inflation disappoints too much. Meanwhile, technical studies retain their mixed signals, unable to confirm either scenario.
Daily chart
The support trend-line on the hourly chart was breached yesterday, while losses were held by the 200-hour SMA around 1.5578. However, the Cable has just pierced the SMA to the downside before the inflation report, which could potentially help the pair regain the bullish momentum. If the GBP/USD fails to stabilise above the 200-hour SMA, the next target would be 1.5424, the previous week's low.
Hourly chart
Bulls barely prevailing over bears
Bears and bulls broke out of the equilibrium, as 51% of all positions are now long, while the share of buy orders slid from 58 to 53%.
Other market participants now have a different outlooks towards the GBP/USD. The SAXO Group traders' sentiment worsened today, with 59% of all positions being short. At the same time, OANDA's market sentiment slightly worsened as well, with 55% of their traders holding short positions, compared to 54% previously.
Spreads (avg, pip) / Trading volume / Volatility
14% of the poll participants expect the British Pound to cost between 1.58 and 1.60 dollars after a three-month period
According to the survey conducted between July 18 and August 18, 14% of traders assume the GBP/USD currency pair will cost either between 1.58 and 1.60 dollars within three months. However, the second place is now taken by two price intervals, namely 1.52-1.54 and 1.60-1.62, both selected by 11% of the voters. The mean forecast for November 18, on the other hand, is 1.5719.