- Percentage of commands to buy the Sterling went up from 36 to 62%
- SWFX market participants remain equally divided between the bulls and bears
- 17% of traders now see the pair between 1.54 and 1.56 in three months
- Upcoming events: UK CPI,UK Core CPI, UK PPI, US NAHB Housing Market Index
The Pound performed worse than most of its counterparts on Monday, as some of the releases surprised to the downside. The currency lost 0.79% against the NZD and 0.44% versus the JPY.
The Confederation of British Industry has revised upwards its UK growth outlook for this year in light of low inflation and falling unemployment figures. The CBI now predicts the British economy to grow by 2.7% in 2015, compared with its November forecast of 2.5%. GDP is estimated to increase 0.7% during each quarter of this year, and then rise by 2.6% in 2016. The organisation said growth will be underpinned by low inflation, which currently stands at 0.5%, low oil prices, robust household spending, as well as falling unemployment. The UK economy will also benefit from low interest rates as it is now unlikely that rates will be lifted this year and may even be cut further. However, political instability due to the UK election in May and crises in Greece and Ukraine could negatively effect on trade, thereby hitting businesses. Also, property website Rightmove said the average asking price of houses put on the market advanced by 2.1% in the four weeks to February 7, picking up momentum from a month earlier.
The UK's GDP slowed to 0.5% in the fourth quarter of 2014, from 0.7% in the previous three months, according to the first official estimate. In its February Inflation Report forecast, the BoE said it predicted growth in the fourth quarter of 2014 to be 0.6% after the final estimate. The BoE is upbeat on growth, as it kept 2015 annual GDP unchanged at 2.9%, but upwardly revised 2016 growth to 2.9%, from the 2.6% estimated in its November forecast.
Michael Sneyd, FX Strategist in BNP Paribas, warns about the risks concerning the elections in UK, as a lot of uncertainty exists around this May event. Although, the underlying fundamentals of the UK economy are strong.
Quiet fundamental background
Consumer Price Index is expected to be released worse than in the previous month in the UK today, while a more stable measure of inflation, namely Core CPI, is predicted to remain unchanged. Volatility of GBP/USD should thus be decreased. On the other hand, the US NAHB Housing Market Index is anticipated to be higher (58) than a month earlier (57).
GBP/USD slightly bounced back after gains
The Fed is expected to raise rates around September 2015 and the Bank of England around February 2016. Sterling's performance over last couple of weeks was rather good, whereas UK rates actually edged lower.
As the Fed and the Bank of England are expected to hike interest rates within the next 12 months, both the USD and GBP are likely to remain largely unchanged. Michael Sneyd, FX Strategist, said: "Sterling probably won't be doing very well against the Dollar, however, it is likely to gain quite a lot attraction against the Euro and the Yen." According to the strategist, GBP/USD is likely to trade at 1.52 in one month, 1.51 in three months and 1.50 in a year. Nevertheless, he considers Sterling to have strengthened and any dips around May are likely to be temporary.
Daily chart
Despite slightly bullish technical indicators, GBP/USD keeps on moving downwards. The Cable has breached the 20-day SMA and kept falling for the last three days. The closest support now is represented by a cluster of important levels, in face of the weekly PP level, 100-day SMA and the lower border of the Bollinger band. Hence, GBP/USD cross is likely to rebound at those supports and rise at least up to the nearest resistance at 1.5385.
Hourly chart
Perfectly neutral sentiment
SWFX market participants remain equally divided between the bulls and bears. Meanwhile, there is a growing percentage of commands to buy the Sterling. Over the night their share went up from 36 to 62%, indicating growing demand.
The sentiment among the SAXO Bank clients is rather bullish, being that 55% of open positions are long. OANDA traders also have a bullish outlook with respect to the Cable, as 60% of market participants are to profit from Sterling's appreciation.