- The share of buy orders inched up from 57 to 58%
- 64% of traders hold long positions
- Immediate resistance is represented by the weekly S1 at 1.4668
- The cluster around 2015 low is the nearest support
- 57% of traders reckon GBP/USD will be at 1.50 or lower in three months
- Upcoming events: US Jobless Claims, UK Trade Balance, US Average Hourly Earnings, US Non-Farm Payrolls, US Unemployment Rate
The Sterling was in for another day of mixed performance yesterday. Gains, however, were registered only against the commodity currencies, namely 0.95% against the Aussie, 0.69% versus the Kiwi and 0.26% versus the Loonie. At the same time, the British Pound sustained losses of 0.80% against the Yen and 0.62% versus the Euro, while the Cable edged lower the least – only 0.31%; despite strong US fundamental data.
Confidence among British services companies dropped to the lowest level in three years in December as the risk of Brexit impacted executives' mood. Markit's headline activity index declined to 55.5 last month from 55.9 in November, but remained above the long-run survey trend level of 55.2. The services sector accounts for roughly 80% of the UK economy. A strong measure of new business was offset by the weakest pace of job creation in the sector since July, while long-term expectations for business activity were the lowest since 2013.
In addition to that Markit lowered its fourth quarter GDP estimate to 0.5% from 0.6% a month ago. The biggest downside contributors to the UK economy growth in 2015 were manufacturers and exporters. A strong Sterling meant UK exports became less attractive on the global arena. Significant downside risks remain in the British economy in 2016, including government spending cuts, a potential increase in interest rates, as well as the cost impact of the living wage. The Bank of England is predicted to hike interest rates in the second quarter of 2016. However, given inflation remains stubbornly low and earnings growth has been sluggish, financial markets see the central bank raising rates around the end of the year as a realistic scenario.
A relatively quiet day
The Initial Jobless Claims are released by the US Department of Labor, they measure the number of people filing first-time claims for state unemployment insurance. In other words, it provides a measure of strength in the labor market. A larger than expected number indicates weakness in this market which influences the strength and direction of the US economy, but according to expectations, today's figure is likely to improve. The Jobless claims usually have a very limited impact on the market, but it is the only direct event to impact the US Dollar.
Nevertheless, a number of data are due tomorrow, such as the UK Trade Balance and the US Non-Farm Payrolls, which are likely to cause greater volatility.
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 on the edge of falling to 2015 low
A much stronger-than-anticipated ADP data on Tuesday contributed to the Cable's weakness that day, pushing the pair to retest the 1.46 level. Nonetheless, another decline is likely to be short-lived, as the GBP/USD is now supported by a strong cluster around the 2015 low of 1.4565, represented by the weekly S2; monthly 2 and the Bollinger band. Due to the lack of sufficient downward momentum a breach is not yet expected; however, although a rebound is possible, the weekly S1 at 1.4668 is to provide resistance and prevent the Sterling from climbing too high.
Daily chart
The GBP/USD continued falling deeper on Wednesday, but was supported by a trend-line just over the 1.46 level. However, this line is unable to cause a sufficient rebound to shift from the current bearish trend. Consequently, the 2015 low at 1.4565 should not be breached today, as it coincides with the down-trend, bolstering the support around that area.
Hourly chart
Bulls remain strong
Today 64% of traders hold long positions (compared to 62% yesterday), while the share of buy orders inched up from 57 to 58%.
SAXO Group and OANDA have different perspectives towards the GBP/USD. Among SAXO Group traders broke out of the equilibrium, as 51% of their positions are now short; whereas 64% of OANDA traders have a positive outlook towards the Cable, compared to 60% on Wednesday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.50 in three months
The majority of votes is still on the bearish side, as most of the survey participants (57%) believe the GBP/USD is going to cost 1.50 or less US dollars in three months. According to the survey, the most popular choice was the one implying that the Sterling will cost between 1.42 and 1.44 dollars in three months, believed by 29% of the voters. Meanwhile, the second most popular choice is the 1.46-1.48 interval, voted for by 14% of the surveyed. At the same time, the mean forecast for Apr 07 is 1.4923.
Concerning the present week, sentiment experienced some changes, but the vast majority of all votes are still negative on the GBP/USD currency pair, namely 71% of them. The average prediction for Friday of this week is located around the 1.480 major level.
Maratamus, a member of the Dukascopy Community, believes the Sterling is to outperform the US currency. "To my mind, the Pound is totally oversold, thus I am going to buy hard," he commented.
Meanwhile, another trader under the nickname jz21 suggests the Cable is to weaken, as he said that it is likely the Sterling will come under strong selling pressure during the first week of January 2016."