- The share of purchase orders edged up from 47 to 58%
- Only 47% of traders now hold long positions
- 17% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
- The nearest resistance is located around 1.60, the Bollinger band
- Immediate support, represented by the weekly PP, lies at 1.5762
- Upcoming events today: UK CBI Industrial Order Expectations, FOMC Member Powell Speech, US Durable Goods and Core Durable Goods Orders, US Flash Manufacturing PMI, US New Home Sales
The Sterling experienced mixed performance for another day, mostly amid Greek deal hopes and US Existing Home Sales showing a lot better-than-expected figures. As a result, the Sterling declined 0.27% versus the Euro and 0.37% versus the US Dollar. However, gains of 0.30% were registered against the Kiwi and 0.16% against both the Aussie and the Yen. Furthermore, the Pound remained relatively unchanged against the Loonie, losing only 0.02% yesterday.
British retail sales unexpectedly rose in May, driven by sales of food and gasoline, as spending on clothing dropped. According to the Office for National Statistics, the volumes of sales climbed 0.2% in the reported month from April, whereas economists had expected a 0.1% decline. Sales soared 4.6% on the year, marking a 26th month of consecutive annual growth, the longest streak since May 2008. Retail sales, which account for 5.6% of Britain's economic output, rose 0.6% in the three months through May from the previous three-month period. Food sales added 0.6% from the previous month, while fuel rose 0.3%. However, sales of clothing and footwear fell 1.6%, declining from a pickup in April when sales jumped 2.9% due to warm weather.
Near-zero inflation and a strengthening labour market are fostering consumer spending as trade continues to act as a drag on economic growth. Average store prices continued to fall for the 11th straight month, declining 2.7% in May this year compared with last year, with the largest contribution coming from petrol stores. In the minutes of its June meeting published earlier in the week, the Monetary Policy Committee said factors limiting price growth were "likely to dissipate fairly shortly," and could strengthen "notably" by the end of the year.
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 Core Durable Goods Orders
There will be no significant data releases concerning the UK today, but from the US side a vast amount of data is expected. The most high-impact event is the Core Durable Goods Orders data release. Although the total value of new purchase orders for durable goods is forecasted to rise from -0.2 to 0.6%, data showed worse-than-expected figures in the previous five months, with exception over April, where the data met expectations. This might have been a sign of a rebound in Core Durable Goods Orders; thus, we should see good figures today. However, some analysts assume the order will reach -0.5% in May's release rather than showing growth.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 suffers a minor setback
After a two-week rally the Cable was pressured down by a lot better-than-expected US fundamentals yesterday. As a result, the GBP/USD dropped to the 1.58 major level, but stabilised at 1.5827. Nevertheless, we still assume the Sterling will outperform the US Dollar today, with the Bollinger band retaining its role as a ceiling around 1.60. Although risks of slumping further exist, the weekly PP has already prevented the British Pound from falling in the early hours, providing the Cable with a chance of surging again.
Daily chart
On the hourly chart we can see that the Sterling struggled to stay above the 1.59 major level since last Thursday. On Friday, the psychological area provided even stronger resistance, until it finally caused a plunge on Monday. Furthermore, the Cable has breached the support trend-line early today, but Is making attempts to regain the bullish momentum, as the trend-line might still provide some support despite being pierced.
Hourly chart
Market sentiment shifted to the bearish side
Market sentiment weakened again, as only 47% of traders now hold long positions. Meanwhile, the share of purchase orders edged up from 47 to 58%.
Other market participants seem to have a bearish outlook towards the Cable as well. The SAXO Group's clients have 74% of short positions, while the market sentiment of OANDA has 59% of bearish traders.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
The survey participants keep lifting the expectation plank higher, as the majority (53%) still assume the Sterling will cost more than 1.56 dollars after a three-month period. However, the most popular choice is now between 1.60 and 1.62, chosen by 17% of the voters. The second place is taken by the 1.50-1.52 price interval, selected by 14% of the surveyed. Meanwhile, the mean forecast for September 23 is 1.5639.