- Difference between the buy (50%) and sell (50%) orders is insignificant
- 51% of open positions are long and 49% are short
- 17% of traders still see the pair between 1.48 and 1.50 in three months
- Upcoming events: US Crude Oil Inventories, Bond Auction
The price of the British Pound increased across the market. The smallest change was recorded in the pair with the US Dollar, where the Sterling gained 0.26%. The largest change was observed in GBP/CAD, were the Pound appreciated 1.23%.
The UK economy grew at the fastest rate in 2014, but weakened closer to the end of the year, as did the manufacturing production sector. A boost in the economy was detected, which was kick-started by plunging world prices of oil. Over the past seven months, oil prices dropped by more than 50%, reducing production costs dramatically. Nevertheless, the net effect for the UK is positive after the country became a net importer of energy more than ten years ago. Weak crude prices are argued to have a positive effect on manufacturing production. Manufacturing output rose only 0.1% in December, compared to the revised 0.8% growth in November. Industrial production dropped, whereas that a rise was expected. Industrial output did not meet expectations of a 0.3% increase, having fallen from -0.1% to -0.2% in December. The British economy remains under a close surveillance amid upcoming general election in May, as UK Prime Minister George Osborne seeks Britons support to be re-elected. Furthermore, retail sales in the UK rebounded from -0.4% in December to 0.2% in January.
However, experts are warning that only heavy discounts are affecting the demand increase. The data suggests that consumers are willing to spend more money, as real incomes recently stopped falling. A rise in consumer spending is expected to boost significantly the UK's economy. According to NIESR, the UK growth accelerated to 0.7% in the three months to January after a downwardly revised 0.5% measured in the quarter to December.
No important data before BoE's report on inflation
There will be no UK-related news except for the long-term bond auction today. The US side of the pair is also unlikely to be able to increase volatility with the news on the crude oil inventories that are expected to grow by a smaller amount than a week earlier.
Concerning the Inflation Report later this week, Stephen Pope, managing director at Spotlight Ideas, in an interview to Dukascopy TV spoke about Carney lowering the target inflation. He also sees "the idea of rate increases from the BoE is being kicked right toward the end of 2015", as "the economic numbers of late have been slipping, and that is not helpful to the current coalition government".
GBP/USD to bounce off 1.53
Simon Smith, Chief Economist at FXPro, advises not overestimate bullish potential of the US Dollar in 2015. According to him, "we will see Dollar strength through the year, but it's going to be a very difficult year in terms of trends".
As for the Sterling itself, Charles Purdy, CEO of Smart Currency Exchange, sees weakness in the nearest future, arguing that "the UK election will count against Sterling" in terms of "higher levels of uncertainty". According to the analyst, GBP/USD is likely to fall to 1.46 by the end of March. However, in a year he expects the exchange rate to recover to 1.48, after the BoE hikes the interest rates in the second half of 2015.
Daily chart
As it turned out, support at 1.52, created by the weekly and monthly pivot points, was sufficient to push the price higher. The currency pair is now headed north, toward the major falling resistance line that is not supposed to let the rate exceed 1.53, at least in the medium term. Support at 1.52 is therefore at a substantial risk of being breached in the next few days, which in turn will imply a decline down to 1.50.
Hourly chart
SWFX traders stay neutral
The SWFX market remains unable to reach a consensus regarding the Cable. At the moment both differences between the long (51%) and short (49%) positions and between the buy (50%) and sell (50%) orders are insignificant.
Unlike the neutral situation at the SWFX market, more or less considerable portions of positions open at OANDA and SAXO Bank are long: 56 and 58%, respectively.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders still see 1.50/1.48 in three months
This week traders' expectations changed insignificantly, with 53% of Dukascopy Community members predicting the pair to advance. Nonetheless, the consensus estimate is beneath last week's close, as bearish forecasts were more extreme than the bullish ones. On average the FX Community traders see GBP/USD finishing this week slightly below 1.52.
A proponent of a bullish scenario, geula4x, reckons that "GBP/USD looks slightly bullish on the daily chart", adding that "Resistance lies around 1.5340, the recent high at February 5 and 6". Meanwhile, aslamhammad holds a bearish view on the pair, expecting the Dollar to outperform the Pound because of improving labour market conditions in the United States.