- The number of sell orders increased from 53 to 58%
- 60% of traders are holding short positions
- Immediate resistance is represented by the 20-day SMA at 1.5262
- The 23.60% Fibo, the monthly S1 and weekly PP cluster remains the nearest support
- 61% of traders reckon GBP/USD will be at 1.54 or lower in three months
- Upcoming events today: UK Retail Sales, US Jobless Claims, Philly Fed Manufacturing Index, FOMC Members Lockhart and Fischer Speeches
The British currency remained strong for an extra day, as it advanced against most major peers. However, gains were rather insignificant, with exception against the Swissie and somewhat the Yen, against which the Sterling added 0.67% and 0.31%, respectively. Lesser gains were detected against other currencies, while the Pound also remained relatively unchanged against the Loonie (0.02%) and the Euro (-0.01%).
Consumer price inflation in the UK remained in negative territory for the second month in a row in October, highlighting worries over deflationary pressures and views that interest rates would stay at record-lows in the nearest future, the Office for National Statistics reported. This was primarily driven by declining transport and food prices that had negatively impacted the inflation rate, which is well below the BoE's target of 2%. Consumer prices declined 0.1% compared with a year ago, the same as in September and in line with analysts' projections. This is the first time this year that inflation rate was below zero for two successive months. In monthly terms, consumer prices climbed 0.1%, also matching expectations. Core inflation, which excludes food, energy, alcoholic beverages and tobacco, stepped up 1.1% in October from September's 1%.
At the same time, input cost inflation slowed down in October to 0.2% from 0.5% in the preceding month, mainly due to a decline in import prices. The retail price index rose 0.7% in October, below the forecasted 0.9% and down from September's 0.8%. With regards to the house price index, it gained 6.1% in the ninth month of the year, above market estimates of a 5.4% rise and following August's increase of 5.5%. The most recent rate of increase in house prices was the fastest one since March, when a 9.6% growth was recorded.
UK Retail Sales and US Philly Fed Manufacturing Index
According to the fundamental forecasts, the US Dollar is likely to outperform the British Pound today. From the UK the Retail Sales data is due, which is expected to slow down after posting a substantial increase from 0.3% to 1.9% in the previous release. The retail Sales are released by the National Statistics measures and are the total receipts of retail stores. Monthly percent changes reflect the rate of changes of such sales. Changes in Retail Sales are widely followed as an indicator of consumer spending. There is a solid chance that the data is going to surprise to the upside, thus preserving the Sterling's current strength
Later today the US Jobless Claims are due. Even though an improvement is expected, the given release tends to have close to no reaction on the USD crosses, therefore, the main event from the US to focus on is the Philadelphia Fed Manufacturing Index. The Philadelphia Fed Survey is a spread index of manufacturing conditions (movements of manufacturing) within the Federal Reserve Bank of Philadelphia. This survey, served as an indicator of manufacturing sector trends, is interrelated with the ISM manufacturing Index (Institute for Supply Management) and the index of industrial production. It is also used as a forecast of The ISM Index. A stronger reading is expected to boost the USD, but according to the forecast (-1.00) the conditions are still worsening, but at a slower rate.
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 trades in murky waters
After having tested the immediate support cluster, the Sterling managed to preserve the bullish momentum yesterday, but failed at reaching the closest resistance. Nevertheless, the GBP/USD has already almost touched the 1.53 major level, ignoring the first stop in face of the 20-day SMA. The current rally is taking place mainly due to a USD sell-off, as a possibility of the Fed delaying the interest rate hike this year remains. The Cable risks retesting the 1.5185 cluster today if the fundamentals trigger a supply and negate current gains; else, we might see the 55-day SMA crossed.
Daily chart
The Cable bounced rebounded from the 23.60% Fibo yesterday and a possible new trend-line. Yesterday's up-trend test was insufficient to confirm the line due to other supports being in play, thus, a possible decline today might provide the required confirmation, with the 23.60% Fibo and the 200-hour SMA bolstering the up-trend below 1.52. At the same time, gains are likely to be capped by the down-trend, which has been preventing the GBP/USD from advancing for the past three months.
Hourly chart
Bears still prevailing over bulls
Once again 60% of traders are holding short positions (previously 61%), while the number of sell orders increased from 53 to 58%.
Both OANDA and SAXO Group retain a bearish outlook towards the GBP/USD. At OANDA, 55% of traders are holding short positions and the remaining 45% - long. Meanwhile, the share of bears at SAXO Group is taking up 57% of the market (previously 56%).
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.54 in three months
The majority of votes shifted to the bearish, as most of the survey participants (61%) believe the GBP/USD is going to cost 1.54 or less US dollars in three months. The most popular price interval is the 1.48-1.50, chosen by more than a fifth, namely by 22% of the voters, while the second choice in popularity was the 1.50-1.52 price range, but selected by only 13% of participants. Meanwhile, the mean forecast for Feb 19 is 1.5296.
Meanwhile, the sentiment for the Cable divided equally during past seven days. The median expectation for Friday of this week is placed around the 1.510 level.
This week Jignesh is expecting the British currency to outperform the US Dollar. He believes the GBP/USD has had a slow and steady rise after the hysteria of the NFP numbers. "There has not been any signs of reversal as of yet, and for the reason it's likely this slow incline will continue," Jignesh said. "However, as the pair moves higher it becomes more and more attractive to the USD Bulls, for that reason we can anticipate a top this week," he added.
Meanwhile, a trader with a bearish outlook, Dariusz, believes that the Cable might continue lower versus the Buck due to the traders' sentiment. Dariusz said that "a key caveat is that recent GBP/USD move above $1.5150 leaves little notable resistance until congestion zones surrounding $1.5250 and $1.5350."