- The number of purchase orders edged higher from 53 to 55%
- 51% of traders hold long positions
- 16% of the poll participants expect the British Pound to cost between 1.58 and 1.60 after a three-month period
- Immediate resistance lies in face of the Bollinger band at 1.5694
- The nearest support rests around 1.5613, represented by the 55-day SMA
- Upcoming events today: US CPI and Core CPI, US Crude Oil Inventories, FOMC Meeting Minutes
The British currency appreciated against most major peers on Tuesday, after the inflation data beat expectations. The Sterling gained the most versus the Aussie and the Euro, adding 0.97% and 0.94%, respectively. Approximately half of that was gained against all, the Greenback, the Yen and the Swissie, whereas the Pound struggled to advance versus the Loonie, gaining only 0.25% against it.
The UK inflation rate turned positive in July as the Office for National Statistics said Tuesday that the consumer price index rose to 0.1%, beating a zero growth forecast. Moreover, core inflation, a less volatile measure, which stripped out energy, food, alcohol and tobacco, increased to 1.2% from 0.8%, reaching the highest rate in five months. Measured on a monthly basis, inflation declined 0.2% in July. A recent strength of the Sterling and sharp decline in oil prices has curbed inflation in Britain. The latest data also showed that the retail price index stayed unchanged at 1%, just in line with expectations.
While the figures published were stronger than anticipated, inflation is still well below the Bank of England's 2 % target. Economists say inflation is likely to remain low in the short term. BoE officials led by Governor Mark Carney expect consumer-price inflation to hover around zero for most of this year, before accelerating back to the target during 2016 and 2017. In its latest economic outlook, the BoE stressed that strong Pound and steep drops in oil prices would push down inflation until at least the middle of 2016 and said the impact of the rise in Sterling could persist even longer. Any further upward movement in inflation could trigger the central bank to start raising interest rates as other indicators, including GDP, wage growth and jobless rate, point out the signs of steady recovery in the economy.
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 CPI and FOMC Meeting Minutes
Wednesday is a quiet day in terms of UK economic data releases, thus, all focus is set on the US fundamentals, namely the inflation data. The Consumer Price Index is a key indicator that measures inflation and changes in the purchasing trends. The CPI is released by the US Bureau of Labor Statistics and is due at 12:30 PM GMT today. Generally, the purchasing power of USD is dragged down by inflation and changes in purchasing trends, meaning that a high reading is seen as positive for the Greenback. The forecast stands at 0.2%, down from 0.3% for CPI, while the Core CPI is expected to grow at the same rate as before, namely 0.2%. Today's CPI data is also likely to influence the FOMC Meeting Minutes results, as strong data should push the Fed to hiking interest rates as early as September.
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 attempts to pierce 1.5670 once again
The Cable managed to rebound from the monthly PP, rather than the support trend-line. As a result, the GBP/USD currency pair skyrocketed towards the weekly R1 at 1.5719, but stabilised in front of the third resistance area, namely the upper Bollinger band. Today's results largely depend on the US inflation data, which could push the Sterling above 1.57 if expectations are not met. Contrariwise, in case the data surprise, the British Pound could fall back under 1.56, where the second support area is located.
Daily chart
The GBP/USD currency pair managed to rebound from the 200-hour SMA and even reached a two-week high yesterday. However, the Cable struggled to resume trade above the 1.57 psychological level, which resulted in a slight correction. Nonetheless, the Sterling keeps climbing and is about to test 1.57 again today, but might bounce back after the US inflation data is released.
Hourly chart
Bulls barely prevailing over bears
Market sentiment remains unchanged, with 51% of traders holding long positions. At the same time, the number of purchase orders edged slightly higher, from 53 to 55%.
Other market participants have a different outlooks towards the GBP/USD. The SAXO Group traders' sentiment slightly improved today, as 58% of all positions are short, compared to 59% previously. At the same time, OANDA's bearish market sentiment returned to its Monday's level of 54%.
Spreads (avg, pip) / Trading volume / Volatility
16% of the poll participants expect the British Pound to cost between 1.58 and 1.60 dollars after a three-month period
According to the survey conducted between July 19 and August 19, 16% of traders assume the GBP/USD currency pair will cost between 1.58 and 1.60 dollars within three months. However, the second place is now taken by the 1.52-1.54 price interval, selected by 11% of the voters. The mean forecast for November 19, on the other hand, is 1.5697.
Dukascopy Community members are mostly bullish on the pair, as more than 54% of respondents believe the pair will appreciate this week. The consensus forecast stands at 1.5612.
The sentiment is rather close to being neutral, as traders are almost equally divided between bulls and bears. Student_21, a traders with a bullish outlook towards the Cable, says that the Pound has potential and needs to see how much the resistance at 1.5950 could withstand. However, "it is a very strong resistance", he added. At the same time, Jignesh, another Dukascopy Community member, expects the Sterling to weaken against the Greenback. Jignesh believes the bears and bulls have been fighting within a certain area for a few weeks now, "but the ever so important technical resistance at 1.5655 has yet to be taken out on the 4 Hour chart, and until it does the pair's downside potential remains greater."