- Number of buy orders increased, now accounting for 54% of the market
- The attitude of SWFX traders towards the British currency worsened, as 48% of all positions are long (50% on Friday)
- 15% of traders see GBP/USD at 1.54/1.56 in three months
- Closest resistance is located at 1.5096, represented by the monthly S1 and 20-day SMA, while nearest support rests around 1.4918, at the weekly PP
- Upcoming events: UK CBI Industrial Order Expectations, US Existing Home Sales, US FOMC Member Fischer Speech
The British Pound had mixed performance on Friday. The Sterling appreciated 1.33% versus the US Dollar and 0.70% versus the Yen. However, a 0.71% slump was recorded against the Kiwi. The Pound also remained relatively unchanged against the Loonie (added 0.02%).
Just two days after UK Chancellor of Exchequer George Osborne presented his Budget for the financial year 2015, country's public finances showed a considerable improvement. On Thursday, the Office for National Statistics published data on Britain's public sector net borrowing in February. Net borrowing, which includes all government's tax receipts and expenses but excludes data from public-sector banks, stayed at 6.9 billion pounds last month, down more than 30% from 10.4 billion pounds during the same month a year ago. Analysts, on average, estimated the budget gap to decrease down to 8.4 billion pounds. The largest part of improvement came from tax receipts as public revenues climbed 7.2%, while spending decreased 0.7%. Despite that, UK budget deficit still remains at a relatively high level. With annual gap between expenditures and tax revenues amounting to around 90 billion pounds, country's deficit-to-GDP ratio remains at 5%, or far above the same indicator for major EU economies, such as Germany or France.
However, British economy is one of the fastest growing among G7 nations, meaning that brightening perspectives for GDP advance and employment are likely to drive UK budget deficit down in the coming years. Mr. Osborne, in turn, intends to fully eliminate the shortfall by financial year 2018-19. It is likely to be reached by further spending cuts, in case the Conservative Party is re-elected into the government after the May 7 general election.
Nicholas Ebisch, Corporate Account Manager at Caxton FX, agrees with Mark Carney's statement before the House of Lords Economic Affairs Committee that "at this point it would be foolish for the BoE to cut interest rates," since it would "add unnecessary volatility to inflation." Ebisch also mentioned that the BoE Governor's use of the word 'foolish' shows that "the MPC is firmly against the interest rate raise at this time."
UK CBI Industrial Order Expectations and US Existing Home Sales
The two main events for today are the UK CBI Industrial Order Expectations, which are expected to worsen, and the US Existing Home Sales, which are expected to increase. If the figures turn out to be in accordance with the forecast, the Greenback will likely outperform the Pound.
David Starkey, Senior Market Analyst from Cambridge Mercantile Group, commenting on the Fed removing 'patience' from Fed's interest rate guidance, said that "Yellen lowered expectation for GDP, inflation, and as such – the trajectory of Fed rates." He noted that "in December the last economic projections were that the Fed rates would be over 1% at the end of 2015." However, the most recent data showed the Fed now only expects rates to go as high as 0.625% by the end of 2015. "As such, the overall result was Dollar-negative," he explained.
GBP/USD rises due to Fed interest rate hike expectations
Despite all the expectations, the Sterling managed to bounce back against the Greenback on Friday, amid potentially slower US interest rate increases than previously anticipated. GBP/USD almost succeeded in completely erasing Thursday's losses. However, the Dollar's weakness is most likely temporary, and the pressure on the Pound is to be renewed, as the technical indicators are still giving strong bearish signals. Immediate support now lies at the weekly PP, around 1.4918, although a deeper fall is possible.
Daily chart
As the Sterling surged on Friday, it almost reached the Wednesday's high. The GBP/USD pair seems to have formed a double top pattern, suggesting that the buyers will lose interest in the Pound. Hence, a slump is expected to take place in the beginning of this week.
Hourly chart
Bears prevail over bulls
The attitude of SWFX traders towards the British currency worsened, as 48% of all positions are long (50% on Friday). At the same time, the number of buy orders increased, now accounting for 54% of the market.
The SAXO Group trader's sentiment is also bearish, as 51% of all positions are now short. However, OANDA market participants are equally divided between bulls and bears.