- The number of orders to acquire the British Pound edged up from 56 to 62%
- Market sentiment has reached a perfect equilibrium today
- 18% of traders assume the Sterling will cost between 1.50 and 1.52 dollars in three months
- The nearest resistance is located around 1.5703, the monthly R1
- Immediate support, represented by the 20-day SMA, lies at 1.5650
- Upcoming events today: UK Net Lending to Individuals, UK Mortgage Approvals, US Pending Home Sales
The Sterling experienced mixed performance, as it appreciated against most major peers, with exception against the Swiss Franc and the Loonie. The British Pound gained the most against the Aussie (1.07%) and the Kiwi (0.86%), following with lesser ones versus the Euro (0.31%) and the Yne (0.21%). The Sterling sustained a 0.41% loss against the Swissie, but remained relatively unchanged versus the Greenback and the Loonie, losing 0.01% and 0.07%, respectively.
UK wage growth remained tepid in the three months through May, and prospects of gains in the near term remained doubtful. According to a new report from XpertHR, the median pay award was unchanged at 2%, with low wage growth settling in for the long term, the view which contradicts comments by the Bank of England. Policy makers expect wages to pick up considerably in the coming months as the British labour market continues to tighten. Currently the average 2% wage growth offers Britons higher real income as consumer price inflation stood at 0.1% in May. Nevertheless, the official indicator measuring average weekly earnings was climbing between January 2003 and December 2008 at an average pace of 4.2%. The gauge, however, declined to an average rise of only 1.2% in the period of January 2009 and 2015. The BoE predicts wage growth to accelerate to 4% by the end f 2016, which should bring inflation to the target by the end of 2017.
According to the latest official data, UK average earnings, excluding bonuses, reached a six-year peak in April rising on average by 2.7%. The biggest gains in pay were recorded in the services and construction sectors, while manufacturing and public sectors pay continued to lag significantly behind. BoE policymaker Jon Cunliffe said the period of weak wages and extended spare capacity in the British labour market is ending slowly as pay and productivity growth are seen to continue rising.
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 Net Lending to Individuals and US Pending Home Sales
The most relevant event to influence the Sterling is the UK Net Lending to Individuals. The Credit levels are intertwined with consumer spending, as people are more confident in spending their money and lenders feel confident issuing loans. The Net Lending has been improving for the past few months and today the figures are expected to show improvements again. Moreover, later on Monday there will also be a release on the US Pending Home Sales, which is a leading indicator of economic health. The number of homes to be sold is forecasted to slow down significantly, resulting in USD weakness. However, risks of the Sterling falling also persist, as the Greek debt crisis keeps bringing uncertainty into the market.
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 aims to retake the 1.57 major level
The Cable remained relatively unchanged last Friday, despite better-than-expected fundamental data. Nevertheless, the Sterling is still likely to outperform the US Dollar today. A strong resistance area rests near the open price, represented by the 1.57 psychological level and the monthly R1. If the GBP/USD receives enough boost, we should see a rally towards the weekly PP at 1.5753. Meanwhile, technical indicators retain their strong bullish signals in the daily and weekly timeframes.
Daily chart
The Sterling was sliding down during the previous week, but showing signs of hope on Friday, as it continued to consolidate after a slight surge on Thursday. Even though the Pound opened lower today, it appears to have already reclaimed the 1.57 level, changing the target to 1.58 now, where the 200-hour SMA rests.
Hourly chart
Bears prevailing over bulls
Market sentiment has reached a perfect equilibrium today. At the same time, the number of orders to acquire the British Pound edged up from 56 to 62%.
Although slightly weaker, but other market participants have a bearish outlook towards the Cable. The SAXO Group's clients have 70% of short positions, compared to 73% on Friday. Meanwhile the bearish market sentiment of OANDA remains unchanged at 58%.
Spreads (avg, pip) / Trading volume / Volatility
18% of traders assume the Sterling will cost between 1.50 and 1.52 dollars in three months
The survey participants have high expectations concerning the Cable, as the majority of them, namely 62%, assume the Sterling will cost more than 1.54 dollars after three months. However, the most popular price interval now remains between 1.50 and 1.52 dollars, chosen by 18% of the surveyed, while the second place is now taken by the 1.60-1.62 price range, voted for by only 15% of the participants. According to the survey conducted between May 29 and June 29, the mean forecast for September 29 is 1.5695.