- Buy orders take up the majority (59%) of the market
- Bullish SWFX traders' sentiment returned to its Monday's level of 64%
- 18% of traders believe the British Pound will cost 1.5521 dollars after a three-month period
- Immediate resistance is at 1.5245 (weekly R1)
- The nearest support lies around 1.5180, namely the 23.60% Fibo and weekly PP
- Upcoming events today: UK Manufacturing and Industrial Production, NIESR GDP Estimate, US Crude Oil Inventories, US Consumer Credit
The Sterling experienced mixed performance on Tuesday, amid the Halifax HPI declining more than anticipated. The Cable edged 0.53% higher, while the Pound gained 0.34% against the Yen and 0.14% versus the Loonie. The British currency suffered a 0.62% loss versus the Aussie, as the RBA kept rates unchanged. Rather moderate declines were also registered against the Swissie (0.38%), the Kiwi (0.27%) and the Euro (0.21%).
British house prices dropped the most in more than a year on a monthly basis in September. According to Halifax survey, the average cost of a home declined 0.9% from the previous month, compare to a 2.7% surge in August, while market expected prices to rise by a monthly 0.1%. Nevertheless, the mortgage lender noted in the statement that monthly changes are volatile and strengthening demand for homes in the UK means the dip may be temporary. From a year earlier, house prices advanced 8.5% in September, down from 9% in the prior month.
Meanwhile, the Halifax also added that housing demand in the UK has been strengthening recently, underpinned by economic growth, rising real earnings and very low mortgage rates. Therefore, there is little reason to expect any fundamental shift in the key market drivers over the coming months. At the same time, the Halifax survey contrasted with another measure of British house prices, compiled by rival mortgage lender Nationwide, which found prices rose more quickly in September than in August.
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.
UK Manufacturing Production and NIESR GDP Estimate
The Office for National Statistics is to release the UK Manufacturing Production data today. Manufacturing makes up approximately 80% of total industrial production, thus, usually has the largest impact. The Manufacturing Production is expected to rebound from -0.8% to 0.3%, showing signs of growth once again; however, a weaker figure will push the Sterling lower against other major peers. Later today the NIESR GDP Estimate is due. The GDP Estimate is released by the National Institute of Economic and Social Research and is an estimate of growth over the last 3 months up to the report which comes out a month before the official announcement. The report is highly reliable and would influence the UK monetary policy, therefore, not only traders are likely to pay attention to it.
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 takes another crack at weekly R1
The US currency failed to outperform the Sterling, amid poor trade data and rising concerns over a 2015 Fed rate hike. As a result, the Cable tested the weekly R1 for the second time, breaching the immediate resistance and settling above the major level of 1.52. The bullish momentum is expected to dominate today as well, but with the upside volatility limited by a strong cluster around 1.53 psychological level. However, weak UK fundamentals could push the GBP/USD back under 1.52, as technical studies retain bearish signs.
Daily chart
The hourly chart does not provide any clearer picture on the GBP/USD. However, there might be a short-term up-trend arising, but it is too early to tell whether it will last or the Cable will drop significantly below the 200-hour SMA again, especially with the Fed and BoE upcoming policy meetings on Thursday.
Hourly chart
Bulls prevailing over bears
Bullish SWFX traders' sentiment returned to its Monday's level of 64%. Meanwhile, buy orders take up the majority (59%) of the market again, compared to 48% yesterday.
The sentiment of other market participants also remains bullish. OANDA has 65% of traders holding long positions, whereas only 52% of traders at SAXO Group retain a positive outlook towards the Cable.
Spreads (avg, pip) / Trading volume / Volatility
18% of traders believe the British Pound will cost 1.5521 dollars after a three-month period
According to the survey, conducted between Sep 7 and Oct 7, the Sterling is expected to cost 1.5521 dollars in three months. The 1.60-1.62 price interval received the largest number of votes, namely 18%, followed in popularity by the 1.48-1.50 interval, selected by only 12% of the voters. However, the overall majority (51%) believes that the Pound will still rise above the 1.56 major level by January 7.
Dukascopy Community members are betting on a bullish scenario, as they expect the price to hit 1.5342 by this Friday. Moreover, 66% of respondents are bullish on the pair.
One of the traders with a positive outlook towards the Cable, namely morev180, suggested that "the formation of the correction of senior level within wave B of (2), which took the form of an irregular plane with developing the final wave c of B. Locally, most likely, formation of the final fifth wave (v) of c of B. If the assumption is true, within the near future is logical to expect the formation of a price reversal and the beginning of growth in the wave with of (2)." Meanwhile, a Dukascopy Community member who believes the Sterling will fail to outperform the Buck said that the Cable has dipped below last week's low of 1.5135 and is coming up on some support at 1.5085. "That if broken, will bring a move below 1.50 on down to the low of 1.4800's. I am inclined to believe now that the Fed will announce an interest rate hike before the BoE", he commented on his bearish view.