- 62% of all pending orders are to sell the British currency
- Bullish market sentiment remains unchanged at 59%
- Immediate resistance is around 1.2750
- The closest support is at 1.2650
- Upcoming events: UK Average Earnings Index, UK Claimant Count Change, UK Unemployment Rate, US Retail and Core Retail Sales, US PPI and Core PPI, US Capacity Utilization Rate, US Industrial Production, US Crude Oil Inventories, FOMC Statement, Federal Funds Rate decision
According to the Office for National Statistics, the UK's cost of living went up to 1.2% in November, showing the highest level in more than two years. Analysts had expected the rate to climb to 1.1%. The ONS said the biggest factor pushing inflation up last month was a rise in clothing prices, which increased by 1.6% between October and November this year, compared with a fall of 0.1% between the same two months a year ago. Moreover, motor fuels and a 'variety of recreational and cultural goods and services', including hotel and restaurant charges, were also the main contributors to November's increased rate as well as the fall in the value of the pound since the Brexit vote also is fueling a rise in the cost of living. Overall, a basket of goods and services that cost £100 in November 2015 would have cost £101.20 last month.
In the meantime, the Bank of England expects prices to keep rising in the coming months, as last year's harsh decline in the oil price falls out of the headline rate and the impact of the decline in the pound continues to feed through to consumer costs. As the result the value of the pound against the dollar and euro in early trading advanced.
Fed meeting eyed the most
Even though there are some relatively important event from the UK side, most attention will still be on the US fundamentals. First of all, the US Retail Sales, they measure the total receipts of retail stores. Monthly percent changes reflect the rate of changes of such sales. Changes in Retail Sales are widely followed as an indicator of consumer spending. Core Retail Sales, however, show all goods sold by retailers based on a sampling of retail stores of different types and sizes except the automobile sector. Another important event will be the Capacity Utilization Rate, which is the percentage of the US production capacity which is actually used over the short-time period. It is indicative of overall growth and demand in the US economy. A high capacity utilization stimulates inflationary pressures. Furthermore, the Industrial Production is due. It shows the volume of production of US industries, such as factories and manufacturing. Up-trend is regarded as inflationary, which may anticipate interest rates to rise. The most important even today, however, is the Federal Funds Rate decision. With a pre-set regularity, a nation's Central Bank has an economic policy meeting, in which board members took different measures, the most relevant one, being the interest rate that it will charge on loans and advances to commercial banks. In the US, the Board of Governors of the Federal Reserve meets at intervals of five to eight weeks, in which they announce their latest decisions. A rate hike tends to boost the local currency, as it is understood as a sign of a healthy inflation. A rate cut, on the other hand, is seen as a sign of economic and inflationary woes and, therefore, tends to weaken the local currency. If rates remain unchanged, attention turns to the tone of the FOMC statement, and whether the tone is hawkish or dovish over future developments of inflation.
GBP/USD in limbo ahead of FOMC meeting
Ahead of the FOMC meeting and the Federal Funds Rate decision the Sterling was unable to post gains against the US Dollar, having closed with a 24-pip loss. Should the Funds Rate remain unchanged today, the Sterling will be able to reach a new two-month high, meaning the immediate resistance area around 1.2750 will be overcome. Technical indicators also suggest the positive outcome is due, but we should not rule out the possibility of bears taking over, in which case the broadening rising wedge's support line at 1.2533 could be not only put to the test, but even pierced.
Daily chart
Although the Cable was unable to maintain trade higher on Tuesday, the bearish momentum was still insufficient to cause a drop below the 200-hour SMA, suggesting support could still be strong. This somewhat supports the possibility of bulls prevailing today.
Hourly chart
Traders mostly bullish
Bullish market sentiment remains unchanged at 59% today, whereas 62% of all pending orders are to sell the British currency, compared to 59% on Tuesday.
A similar situation is observed elsewhere. For example, 59% of positions open at OANDA are currently long. This is more than the share of shorts (41%), 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 March 14 is 1.2534. Furthermore, the 1.28-1.30 interval is now the most popular one, having 14% of the votes. On the second place in terms of the votes is the 1.30-1.32 (13%) interval, followed also by the 1.16-1.18, 1.18-1.20 and 1.32-1.34 intervals, all three with only 11% of the votes. Moreover, 60% all survey participants believe the Cable is to fall above 1.24.