- The share of purchase orders increased from 26 to 64%
- 55% of all positions are now long
- The 100-day SMAs is preventing the pair from edging higher
- The bottom target is the cluster around 1.5360
- 67% of traders reckon GBP/USD will be at 1.54 or higher in three months
- Upcoming events today: UK Manufacturing PMI, US ISM Manufacturing PMI and Markit Manufacturing PMI, US Construction Spending, FOMC Member Williams Speech
The Sterling appreciated against most major peers on Friday and over the weekend, with exception against the commodity currencies. The Pound gained the most against the US Dollar, due to worse-than-expected US fundamental data, followed by a 0.60% gain versus the Swissie and 0.51% versus the Euro. However, losses of 0.46% and 0.12% were detected against the Kiwi and the Aussie, respectively, whereas the British currency remained completely unchanged against the Loonie.
UK house price growth accelerated in October, adding to signs of renewed momentum in the housing market. House prices climbed by 0.6% this month after the 0.5% increase in September. Measured on a yearly basis, the reading rose 3.9% in October, up from the 3.8% annual gain in September. According to Nationwide, house prices had risen at an annual 3% to 4% over the past five months, which boded well for a solid increase in housing market activity. Meanwhile, the number of mortgages approved for house purchases declined slightly in September, the Bank of England's data showed. The total fell from 70,664 in August to 68,874 in September, but this was higher than the average of the previous six months of 66,900.
A separate report showed retail sales volumes declined in October after a surge last month. The overall balance of UK retail sales slowed to +19% over the year to October, down from 49% in September and notably below expectations, data from the Confederation of British Industries. Nevertheless, the outlook for sales remained resilient due to low inflation, increasing wages and looming Christmas shopping season.
UK Manufacturing PMI and US ISM Manufacturing PMI
The UK and US Manufacturing PMIs are due today, with the one concerning the UK released earlier. The UK Manufacturing Purchasing Managers Index (PMI) is released by both the Chartered Institute of Purchasing & Supply and the Markit Economics captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the Manufacturing PMI is an important indicator of business conditions and the overall economic condition. A slight change to the downside is expected in both PMIs, but the US ISM one is forecasted to reach the 50.00 mark, reaching the edge between contraction and expansion; therefore, the US currency is expected to experience more pressure. Furthermore, other fundamental data releases scheduled for Monday are also forecasted to worsen, with the only exception being the ISM Prices Paid (which are still likely remain below the 50.00 mark, despite a possible improvement today).
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 sets eye on 1.55
Last Friday the Cable managed to erase all week's losses and even stabilise above 1.54, amid poor US fundamentals. Today the GBP/USD is expected to extend its rally, with the nearest resistance located around 1.5480, namely the 100-day SMA, which prevented the Sterling from climbing higher for three weeks in a row. In case of a breach, another solid supply is located at 1.5515. However, there is still room for the pair to edge back below 1.54, but a tough cluster, represented by the weekly and monthly PPs, the 20, 55 and 200-day SMAs, is likely to limit the losses circa 1.5360.
Daily chart
The 200-hour SMA was completely ignored on Friday, allowing the GBP/USD to reach a weekly high of 1.5468. The pair now risks undergoing a correction after Friday's substantial rally, but a rally towards the 1.55 area is still possible, but the exchange rate struggled to edge above that mark during the past two weeks and might have troubles doing so again today.
Hourly chart
Neutral sentiment
Bulls and bears broke out of equilibrium, with 55% of all positions now long. The share of purchase orders increased from 26 to 64%.
The distribution between the bulls and bears at OANDA switched places once again, as 52% of open positions are short and 48% are long. On the other hand, the proportion of bears at SAXO Bank increased once more, with the gap between short and long positions slightly wider. Bulls now take up 40% of the market, while bears-the remaining 60%.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD above 1.54 in three months
There appears to be no clear view in the market how the Cable is going to perform during the next three months, but 67% of survey participants reckon that GBP/USD will be at 1.54 or higher. Judging by the results of the poll conducted in October, 19% of traders expect the Sterling to cost between 1.58 and 1.60 US dollars in the beginning of February. At the same time, 12% of the estimates are that the UK currency will be worth either between 1.62 and 1.64, or between 1.54 and 1.56, or 1.56 and 1.58, or even less than 1.46 US Dollars in three months. The third most popular choice (10%) was that GBP/USD will fall to somewhere between 1.50 and 1.52. The average forecast for Feb 02 is 1.5565.