- The gap between the numbers of buy and sell orders contracted
- SWFX market remains almost equally divided between the bulls (47%) and bears (53%)
- 62% of forecasts for Aug 18 are below 1.56
- Main resistance is at 1.58, followed by the trend-line at 1.58
- Nearest support is at 1.5550 (200-hour SMA)
- Upcoming events today: US NAHB Housing Market Index; tomorrow: UK CPI, USD Building Permits
Although there were no disappointing fundamental events during Friday, the Sterling was more bearish than bullish. The currency underperformed the Euro (-0.65%), the US Dollar (-0.31%), and the Japanese Yen (-0.23%), while either staying unchanged or appreciating relative to the rest of its major peers.
Earlier, UK manufacturing production rose more than expected in March, while industrial output also overshot economists' forecasts. According to the Office for National Statistics, manufacturing production climbed by a seasonally adjusted 0.4% in the reported month, beating expectations for a rise of 0.3% and following an upwardly revised 0.5% gain in the preceding month. Measured on an annualized basis, manufacturing output edged higher 1.1%, topping estimates for a 1.0% gain, after increasing at a rate of 1.2% in February. The report also showed British industrial production rose the most since September as oil and gas extraction soared and manufacturing increased for a second month. Output gained 0.5% in March from the previous month, whereas economists expected no change. In the beginning of the year, industrial output was revised to show a 0.1% increase from a 0.1% decline, though the ONS acknowledged the effect on GDP would be limited. Oil and gas extraction soared 4.9%, the most since February last year. From a year earlier, industrial output climbed 0.7%.
Meanwhile, the NIESR estimated UK gross domestic product rose 0.4% in the three months through April, following the 0.3% increase in the March quarter. NIESR expects that a softening of GDP growth in the first quarter was temporary and the economy should expand by 2.5% for the year as a whole.
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.
Quiet start of the week for GBP/USD
According to the economic calendar, there are no significant for GBP/USD events today. The only release worth following in the NAHB Housing Market Index, which is expected to increase from 56 to 57. Tuesday, on the other hand, will be marked by the UK CPI, which is expected to remain unchanged, and the US Building Permits, which should grow by 20K to 1.06M.
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 exposed to a dip to 1.55
As anticipated, supply at 1.58 was enough to stop the Sterling on Friday. However, the question remains, whether the upward momentum is now fully exhausted, or the sell-off that is highly likely to follow will only be a correction before yet another rally. If we accept that the Cable is currently trading in a channel, there could be a decline down to 1.55 without the bullish outlook being compromised.
Daily chart
On the hourly chart the Pound appears to be bearish as well, especially since the currency has recently broken the up-trend. The target is now the 200-hour SMA at 1.5550, followed by the rising support line drawn on the daily chart.
Hourly chart
SWFX sentiment neutral; elsewhere bears dominate
The SWFX market remains almost equally divided between the bulls (47%) and bears (53%). Meanwhile, the gap between the numbers of buy and sell orders contracted, from 18 to 12 percentage points in favour of the former, meaning demand is waning.
At the same time, OANDA and Saxo Bank traders are more pessimistic with respect to the UK currency. The first broker reports that only 38% of its clients are long the Pound. The sentiment is even more bearish among the Saxo traders, 71% of whom are short.
Spreads (avg, pip) / Trading volume / Volatility
Majority of people is bearish on GBP/USD
The forecasts for GBP/USD in three months keep improving, but are still below the spot price, with 62% of them being below 1.56. The most popular price range is 1.50-1.48, voted for by 13% of respondents. However, the second most popular choice is 1.58-1.56 (12% of answers). The mean forecast for Aug 18 is 1.5287.