- The share of buy orders also worsened, from 59 to 54%
- Today 62% of traders hold long positions
- 32% of traders believe the British Pound will cost more than 1.60 dollars after a three-month period
- Immediate resistance is at 1.5318 (200-day SMA)
- The nearest support lies around 1.5305, namely the weekly R2, monthly PP and 20-day SMA
- Upcoming events today: MPC Official Bank Rate Votes and UK Official Bank Rate, UK Asset Purchase Facility, US Jobless Claims, BoE Governor Carney Speech, FOMC Meeting Minutes
The Pound appreciated against most major peers on Wednesday, amid a better-than-expected Manufacturing Productions report. The largest gain was recorded against the Swiss Franc (1.32%), followed by a 0.91% gain against the Euro and 0.78% versus the Loonie. However, a loss of 0.41% was detected against the Kiwi, whereas the Sterling remained relatively unchanged against the Aussie, adding only 0.01%.
Both manufacturing production and the overall industrial output in the UK increased comfortably above expectations in August, driven by a surge in oil and gas extraction, as well as by a rebound in car production. The factory output rose to a six-month high of 0.5% on a monthly basis in August, up from a revised decline of 0.7% a month before, while markets expected to see a 0.4% gain. However, the output in the sector fell 0.8% when compared with the same month a year ago. The primary upward driver for a monthly growth in the sector was a notable increase in car production after an earlier summer shutdown in July. That, in turn, helped to push the overall transport equipment segment up to a rise of 4.6% in August.
At the same time, the overall industrial production in the United Kingdom advanced 1% on a month-on-month basis, and was driven mainly by a significant increase in oil and gas extraction from the North Sea, rising by 8.7% in August. In the prior month the industrial output contracted 0.3%. Nevertheless, despite an advance in August, the manufacturing sector remains one of the most volatile in the UK, while producers continue to struggle with softer global markets and strong exchange rate of the Sterling.
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 and US Rate Decisions
While in the UK no surprises concerning the MPC Member Votes and monetary policy are expected, it is still an important event. However, the main focus is on the FOMC Meeting Minutes; the reason for this is the speculation and rising concerns over a possible rate hike delay from the end of 2015 to 2016. The Fed is expected to provide insight on the future rate hike, with the reassurance of a hike in 2015 to strengthen the US currency. Any delay to 2016 is likely to cause a US Dollar selloff, weakening the Buck against other major currencies.
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 muted, awaits interest rate decisions
The Cable prolonged its rally for another day on Wednesday, reaching the target resistance cluster around 1.53. The Sterling opened trade today in between the mentioned cluster's levels, with more of those supporting the pair. Even though the pair should extend its rally, risks of returning back to 1.52 persist, due to fundamental market movers. Technical studies also provide no insight on the GBP/USD's movement today, although the weekly signals remain bearish. In case of a sharp USD selloff, the Pound could retake 1.54 level and even reach the 100-day SMA near 1.55.
Daily chart
The hourly chart does not provide any clearer picture on the GBP/USD. However, there might be a short-term up-trend arising, but it is too early to tell whether it will last or the Cable will drop significantly below the 200-hour SMA again, amid the Fed and BoE upcoming policy meetings today.
Hourly chart
Bulls prevailing over bears
Today 62% of traders hold long positions, compared to 64% yesterday. The share of buy orders also worsened, from 59 to 54%.
The sentiment of other market participants also remains bullish. OANDA has 59% of traders holding long positions. However, 51% of traders at SAXO Group now have a negative outlook towards the Cable.
Spreads (avg, pip) / Trading volume / Volatility
32% of traders believe the British Pound will cost more than 1.60 dollars after a three-month period
According to the survey, conducted between Sep 8 and Oct 8, the Sterling is expected to cost 1.5566 dollars in three months. The 1.60-1.62 price interval received the largest number of votes, namely 18%, followed in popularity by the 1.58-1.60 interval, selected by only 12% of the voters. However, the overall majority (54%) believes that the Pound will still rise above the 1.56 major level by January 8.
Dukascopy Community members are betting on a bullish scenario, as they expect the price to hit 1.5342 by this Friday. Moreover, 66% of respondents are bullish on the pair.
One of the traders with a positive outlook towards the Cable, namely morev180, suggested that "the formation of the correction of senior level within wave B of (2), which took the form of an irregular plane with developing the final wave c of B. Locally, most likely, formation of the final fifth wave (v) of c of B. If the assumption is true, within the near future is logical to expect the formation of a price reversal and the beginning of growth in the wave with of (2)." Meanwhile, a Dukascopy Community member who believes the Sterling will fail to outperform the Buck said that the Cable has dipped below last week's low of 1.5135 and is coming up on some support at 1.5085. "That if broken, will bring a move below 1.50 on down to the low of 1.4800's. I am inclined to believe now that the Fed will announce an interest rate hike before the BoE", he commented on his bearish view.