GBP/USD to weaken again after channel breach

• Buy orders now take up 49% of the market
• 46% of all positions are now long (previously 45%)
• 56% of forecasts for Aug 25 are below 1.56
• Main resistance is at 1.5499, the 20-day SMA
• Nearest support is around 1.5408 (200-day SMA)
• Upcoming events today: FOMC Member Fischer Speech

© Dukascopy Bank SA

The Sterling suffered substantial losses over Friday. The largest decline of 1.10% was registered against the US Dollar, following with a 0.69% drop versus the Yen, 0.57% versus the Kiwi and 0.44% against both, the Loonie and the Swissie. Lesser declines of 0.23% and 0.21% were detected against the Euro and the Aussie, respectively.

The British economy is expected to close its output gap within next year, Mark Carney, Bank of England Governor said, adding that recent slowdown in inflation is due to a fall in food and energy prices. Carney forecast productivity to pick up, but it would not return to historical averages any time soon.

Meanwhile, Carney might face accusations in lack of transparency, after a secret BoE's report was accidentally sent to the Guardian newspaper. The work is known as "Project Bookend", managed by Deputy Governor Jon Cunliffe, was meant to assess potential risks related British exit from the European Union. The email also included guidance for how to rebuff questions from the public. The Bank of England said it would not talk about its assessment in advance but would disclose details "at the appropriate time," adding it had taken a similar approach when it considered the implications of last year's Scottish referendum. Prime Minister David Cameron is a referendum on EU membership by the end of 2017, and the BoE's unfortunate mistake may drag Governor Mark Carney into the political debate. Yet, Cameron said he was confident he could strike a deal on EU reforms that satisfy his demands and those of the British people before holding the referendum. Still, many British business leaders are concerned about the possibility of losing access to their top export markets and there are also worries about the impact on Britain's financial services industry.

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.

FOMC Member Fischer Speech

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 to weaken again after channel breach

The Cable suffered heavy losses on Friday, amid better-than-expected US fundamentals. As a result, the Sterling breached the channel lower trend-line, breaking out of the pattern, and found support at 1.5499, namely the 20-day SMA. The GBP/USD opened trade under the mentioned SMA, therefore, more downside volatility is anticipated today, with immediate support located at 1.5408, represented by the 200-day SMA. Technical indicators are now giving mixed signals, unable to confirm the scenario.

Daily chart

© Dukascopy Bank SA

Hourly chart

© Dukascopy Bank SA

Bulls pushing closer to equilibrium

SWFX traders' sentiment slightly improved, as 46% of all positions are now long (previously 45%). The portion of buy orders dropped by 20 percentage points, as they now take up 49% of the market.

Saxo Bank traders are more pessimistic with respect to the UK currency, as they report that only 40% of its clients are long the Pound. Meanwhile, the sentiment among OANDA traders has reached a perfect equilibrium.

Spreads (avg, pip) / Trading volume / Volatility

18% of traders expect the Sterling to cost between 1.48 and 1.50 dollars in three months

© Dukascopy Bank SA

• Buy orders now take up 49% of the market
• 46% of all positions are now long (previously 45%)
• 56% of forecasts for Aug 25 are below 1.56
• Main resistance is at 1.5499, the 20-day SMA
• Nearest support is around 1.5408 (200-day SMA)
• Upcoming events today: FOMC Member Fischer Speech

The Sterling suffered substantial losses over Friday. The largest decline of 1.10% was registered against the US Dollar, following with a 0.69% drop versus the Yen, 0.57% versus the Kiwi and 0.44% against both, the Loonie and the Swissie. Lesser declines of 0.23% and 0.21% were detected against the Euro and the Aussie, respectively.

The British economy is expected to close its output gap within next year, Mark Carney, Bank of England Governor said, adding that recent slowdown in inflation is due to a fall in food and energy prices. Carney forecast productivity to pick up, but it would not return to historical averages any time soon.

Meanwhile, Carney might face accusations in lack of transparency, after a secret BoE's report was accidentally sent to the Guardian newspaper. The work is known as "Project Bookend", managed by Deputy Governor Jon Cunliffe, was meant to assess potential risks related British exit from the European Union. The email also included guidance for how to rebuff questions from the public. The Bank of England said it would not talk about its assessment in advance but would disclose details "at the appropriate time," adding it had taken a similar approach when it considered the implications of last year's Scottish referendum. Prime Minister David Cameron is a referendum on EU membership by the end of 2017, and the BoE's unfortunate mistake may drag Governor Mark Carney into the political debate. Yet, Cameron said he was confident he could strike a deal on EU reforms that satisfy his demands and those of the British people before holding the referendum. Still, many British business leaders are concerned about the possibility of losing access to their top export markets and there are also worries about the impact on Britain's financial services industry.

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.

FOMC Member Fischer Speech

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."

Christopher Dembik, an analyst at SAXO Bank, gives his prospects for the Cable. In the short-term deflation will certainly be a key issue for the UK economy, but he strongly believes that investors will try to push the GBP lower back to 1.55, mostly because of worries on deflation. However, in the longer term he remains confident about the UK economy. Christopher expects to see a stronger GPB in one or two years, as the UK economy is very solid and has good activity.

GBP/USD to weaken again after channel breach

The Cable suffered heavy losses on Friday, amid better-than-expected US fundamentals. As a result, the Sterling breached the channel lower trend-line, breaking out of the pattern, and found support at 1.5499, namely the 20-day SMA. The GBP/USD opened trade under the mentioned SMA, therefore, more downside volatility is anticipated today, with immediate support located at 1.5408, represented by the 200-day SMA. Technical indicators are now giving mixed signals, unable to confirm the scenario.

Daily chart

Hourly chart

Bulls pushing closer to equilibrium

SWFX traders' sentiment slightly improved, as 46% of all positions are now long (previously 45%). The portion of buy orders dropped by 20 percentage points, as they now take up 49% of the market.

Saxo Bank traders are more pessimistic with respect to the UK currency, as they report that only 40% of its clients are long the Pound. Meanwhile, the sentiment among OANDA traders has reached a perfect equilibrium.

Spreads (avg, pip) / Trading volume / Volatility

18% of traders expect the Sterling to cost between 1.48 and 1.50 dollars in three months