- The number of sell orders dropped from 59 to 53%
- There are even more bears today than before, namely 61%
- Immediate resistance is represented by the 20-day SMA at 1.5266
- The 23.60% Fibo, the monthly S1 and weekly PP cluster remains the nearest support
- 60% of traders reckon GBP/USD will be at 1.54 or lower in three months
- Upcoming events today: US Building Permits, US Housing Starts, US Crude Oil Inventories, FOMC Member Dudley Speech, FOMC Meeting Minutes
The British currency appreciated against most major peers on Tuesday, as the inflation data fell in line with expectations. The largest gains were recorded against the Swissie, the Euro and the Kiwi, adding 0.56%, 0.49% and 0.42%, respectively. The Sterling also suffered a 0.15% loss against the Aussie, while remaining relatively unchanged against Loonie (-0.01%) and the Greenback (0.07%).
Consumer price inflation in the UK remained in negative territory for the second month in a row in October, highlighting worries over deflationary pressures and views that interest rates would stay at record-lows in the nearest future, the Office for National Statistics reported. This was primarily driven by declining transport and food prices that had negatively impacted the inflation rate, which is well below the BoE's target of 2%. Consumer prices declined 0.1% compared with a year ago, the same as in September and in line with analysts' projections. This is the first time this year that inflation rate was below zero for two successive months. In monthly terms, consumer prices climbed 0.1%, also matching expectations. Core inflation, which excludes food, energy, alcoholic beverages and tobacco, stepped up 1.1% in October from September's 1%.
At the same time, input cost inflation slowed down in October to 0.2% from 0.5% in the preceding month, mainly due to a decline in import prices. The retail price index rose 0.7% in October, below the forecasted 0.9% and down from September's 0.8%. With regards to the house price index, it gained 6.1% in the ninth month of the year, above market estimates of a 5.4% rise and following August's increase of 5.5%. The most recent rate of increase in house prices was the fastest one since March, when a 9.6% growth was recorded.
US Building Permits and FOMC Meeting Minutes
With no significant events in the UK scheduled for today, the most important data release is the US Building Permits. The Building Permits are released by the US Census Bureau at the Department of Commerce and show the number of permits for new construction projects. It implies the movement of corporate investments (US economic development) and tends to cause some volatility to the USD. However, the FOMC Meeting Minutes later today is likely to cause an even greater impact on USD crosses. This meeting reviews economic and financial conditions and determines the appropriate stance of monetary policy, assesses the risks to its long-run goals of price stability and sustainable economic growth. Any information concerning the December rate hike is expected to drive the Cable accordingly.
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 at the beginning 2016."
GBP/USD tests 23.60% Fibo once again
Yesterday the disappointing Industrial Production figures weighed on the US currency, giving the Sterling the upper hand and, thus, allowing the Cable to recover from intraday losses. Although the pair remained above the 1.52 level, the rally was only ten pips high, leaving the risks of GBP/USD declining open. The immediate support is likely to be breached, leading the Pound all the way down back to Sep low of 1.5106. Meanwhile, any hints from the FOMC Minutes concerning the delay of the Fed's rate hike should trigger another rally at least towards the nearest resistance, the 20-day SMA.
Daily chart
The GBP/USD managed to break away from the 200-hour SMA and return above the 23.60% Fibo. Although the two levels are now providing support, the Cable still risks falling below after the FOMC Meeting Minutes later today. A rebound is also possible, leaving the Sterling towards the down-trend.
Hourly chart
Bears still prevailing over bulls
Even though there are even more bears (61%) today (previously 60%), the number of sell orders dropped from 59 to 53%.
Both OANDA and SAXO Group retain a bearish outlook towards the GBP/USD. At OANDA, 59% of traders are holding short positions and the remaining 41% - long. Meanwhile, the share of bears at SAXO Group is taking up 56% of the market.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.54 in three months
The majority of votes shifted to the bearish, as most of the survey participants (60%) believe the GBP/USD is going to cost 1.54 or less US dollars in three months. The most popular price interval is the 1.48-1.50, chosen by more than a fifth, namely by 22% of the voters, while the second choice in popularity was the 1.50-1.52 price range, but selected by only 12% of participants. Meanwhile, the mean forecast for Feb 18 is 1.5316.
Meanwhile, the sentiment for the Cable divided equally during past seven days. The median expectation for Friday of this week is placed around the 1.510 level.
This week Jignesh is expecting the British currency to outperform the US Dollar. He believes the GBP/USD has had a slow and steady rise after the hysteria of the NFP numbers. "There has not been any signs of reversal as of yet, and for the reason it's likely this slow incline will continue," Jignesh said. "However, as the pair moves higher it becomes more and more attractive to the USD Bulls, for that reason we can anticipate a top this week," he added.
Meanwhile, a trader with a bearish outlook, Dariusz, believes that the Cable might continue lower versus the Buck due to the traders' sentiment. Dariusz said that "a key caveat is that recent GBP/USD move above $1.5150 leaves little notable resistance until congestion zones surrounding $1.5250 and $1.5350."