- The share of buy orders inched up from 47 to 58%
- Bullish SWFX traders' sentiment takes up only 53% of the market
- 22% of the poll participants expect the British Pound to cost between 1.60 and 1.62 dollars after a three-month period
- Immediate resistance lies in face of the Bollinger band at 1.5658
- The nearest support rests at 1.56, represented by the weekly PP
- Upcoming events today: UK Manufacturing Production, BoE Inflation Report, UK Official Bank Rate, MPC Official Bank Rate Votes, UK Asset Purchase Facility, MPC Asset Purchase Facility Votes, MPC Rate Statement, BoE Governor Carney Speech, US Jobless Claims, UK NIESR GDP Estimate, US Natural Gas Storage
The Sterling was one of the best-performing currencies on Wednesday, as it appreciated against most major currencies. The largest gains of 0.63% and 0.59% were recorded against the Yen and the Aussie, respectively, following with less ones versus the Kiwi (0,40%), the Swissie (0.34%) and the Greenback (0.24%). Furthermore, the Pound remained relatively unchanged versus the Loonie and the Euro, adding 0.07% against both.
Service industry in Britain, which makes up around 78% of the UK's GDP, continued to expand in July. However, growth slowed down and missed economist estimates, thus indicating that the Europe's third largest economy might have cooled down. Markit/CIPS PMI in July, slipped to 57.4 from 58.5 the month before, and below the market expectations of 58. However, this was the 31st consecutive month of expansion in the sector. Nonetheless, the July figure was weaker than the trend seen in the first six months of the year, when in the first half of 2015 service companies recorded growth of 57.6 and 58.2, respectively. The main subsector behind the expansion in service sector was the financial services, which recorded fastest growth since 2013. Meanwhile, the rest of subsectors indicated the slowest growth in almost three years. In addition to that, 18% of British services companies stated that they saw an expansion in the workforce in July, compared with approximately 9% that decreased the number of workers.
Moreover, construction PMI data, released earlier in the week, also disappointed economists as growth slowed down to 57.1 in July versus 58.1 in June. These two important PMI figures raise questions the UK's economic recovery.
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.
MPC Official Bank Rate Votes determines the Cable's fate
With the vast amount of data releases scheduled for today, the MPC Official Bank Rate Votes are expected to have the biggest impact on the British currency. Two of the MPC members are expected to change their view and vote for hiking the interest rates, which would result in a short-term boost for the Sterling. However, if they retain their views on keep the interest rates unchanged, the GBP/USD currency pair should suffer some weakness. Furthermore, the UK Manufacturing Production is forecasted to rebound in July from -0.6% to 0.2%. Finally, the BoE's governor is to provide more insight on the BoE's actual interest rate hike possibility; the Cable is likely to be subject to volatility during his speech. Overall, the Pound should either experience a gradual increase in value today or sustain serious losses, with the MPC Bank Rate Votes being the main market mover for that.
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 awaits MPC Bank Rate Votes for a boost
Even though the GBP/USD currency pair experienced rather substantial volatility yesterday, the pair still managed to appreciate. The weekly PP limited the gains, thus, rendering the support trend-line viable again. A strong support cluster rests at 1.5585, represented by the trend-line and 20 and 55-day SMAs, suggesting the Sterling is to advance today. The British Pound has the potential to reach the 1.58 major level, also bolstered by the weekly R2 and monthly R1; however, more dovish-than-expected MPC Bank Rate votes could turn the tables, resulting in a slump to around 1.55.
Daily chart
There were no surprises seen on the hourly chart, as the Cable managed to regain the bullish momentum and retake the 1.56 psychological level. However, resistance was met at a newly-formed trend-line, which is being tested again today. The sterling risks falling back down, confirming the trend-line once more, although it is anticipated to be breached later today.
Hourly chart
Bulls now prevailing over bears
Bullish SWFX traders' sentiment takes up only 53% of the market; whereas, the share of buy orders inched up from 47 to 58%.
Other market participants now have a different outlooks towards the GBP/USD. The SAXO Group traders' sentiment remains bearish, as 61% of all their positions are now short (previously 58%). At the same time, OANDA's market sentiment slightly improved, with 52% of their traders being short the Sterling, compared to 53% yesterday.
Spreads (avg, pip) / Trading volume / Volatility
22% of the poll participants expect the British Pound to cost between 1.60 and 1.62 dollars after a three-month period
According to the survey conducted between July 06 and August 06, 22% of traders assume the GBP/USD currency pair will cost between 1.60 and 1.62 dollars within three months. However, the second place now taken by the 1.58-1.60 price intervals, selected by 18% of the surveyed. The mean forecast for November 06, on the other hand, is 1.5826.
Following hopeful development of the pair during July 27-31 week, participants of our weekly Community Forecasts quiz decided to become much more bullish on the Cable, as currently only 30% of them support movement to the south.
Kanbarsky, one of the Dukascopy Community members, has a bullish outlook towards the Sterling this week. He said that "the GBP is on a bearish long-term trend, but on the short-term until Friday, it is in a correction up and might reach the above targets." However, some traders, like iiivb, retain their bearish perspective towards the Cable. He expects Yellen's comments to accelerate a bullish USD sentiment across the board. "At a slower pace Cable should follow Euro prices, although, Cable must clearly break below 1.55 price to accelerate a bearish direction" – he mentioned.