- There is no notable difference between the buy (48%) and sell (52%) orders
- 46% of positions are long and 54% of positions are short
- Immediate resistance is at 1.3280/60
- Current target is 1.3060
- Traders' forecasts remain stable
- Upcoming events: UK Retail Sales, MPC Vote, US Retail Sales, PPI, Unemployment Claims, Manufacturing Index
British consumer prices held steady last month, ignoring an increase in the prices of imported raw materials driven by the country's decision to leave the European Union. According to the UK Office for National Statistics (ONS), the Consumer Price Index (CPI) came in at 0.6% in August, in line with last year's reading, whereas market analysts penciled in a slight increase to 0.7% in the reported month. On a monthly basis, the CPI grew 0.3% in August, up from the preceding month's fall of 0.1%, while economic desks expected the indicator to come in at 04%. Meanwhile, the so-called core CPI, which excludes food and energy prices, increased 1.3% on an annual basis in the eight month of the year, unchanged from July's reading, whereas analysts anticipated a slight rise to 1.4% in August. The British Pound dropped 0.6% against the US Dollar after the data release, trading at $1.3250 on the London Stock Exchange.
ONS data also showed that the Producer Price Index Input (PPI Input) rose 0.2% month-over-month in August, compared to July's downwardly revised gain of 3.1%. Markets expected the Index to come in at 0.6% last month. Furthermore, the Retail Price Index (RPI) climbed 1.8% in the same month, down from July's reading of 1.9% but in line with analysts' expectations.
Be prepared for sky-high volatility
Today we have an extremely busy schedule, and we are almost certain to have increased volatility throughout the day. All will start with the UK data on retail sales, the volume of which is to contract 0.4% after growing 1.4% a month earlier. This will be continued with every month's main event, namely official bank rate announcement and MPC rate vote, although no changes are expected in this regard, as the BOE is yet to evaluate the effect of the recent additions to asset purchase facility.
In the afternoon the focus will shift over the Atlantic. The US retails are expected to shrink 0.1%, which is not much of a change compared to the previous reading of zero. At the same time, among many other releases we will receive data on the number of unemployment claims, producer prices and manufacturing sector, and for the time being the effect seems impossible to estimate, as the expectations are mixed - some indicators (PPI, Current Account, etc.) are to improve, while the others (Manufacturing Index, Unemployment Claims, etc.) are to deteriorate.
GBP/USD to stay below 1.3320
GBP/USD is currently pulling back after the pair broke out of the bullish channel to the downside. The gains from the monthly pivot point at 1.3126 that acted as a strong support area yesterday should be limited by 1.3320, where supply is implied by the weekly PP, 23.6% retracement of the ‘Brexit' sell-off and the lower bound of the channel that originated in mid-August. Once the ceiling is confirmed, the price should revisit yesterday's low and then extend the decline towards 1.29, which is the location of the monthly S1 and August low.
Daily chart
In the hourly chart the price is currently forming a pattern that resembles a falling broadening wedge. If this is the case (if its upper bound at 1.3280 is successfully tested), this would signify a potential reversal. Nevertheless, most of the other technicals, including the 200-hour SMA at 1.33 that acts as resistance, are against such a scenario.
Hourly chart
Traders fail to reach a consensus
The share of bears increased, but insufficiently to change the sentiment that remains neutral with 46% of positions long and 54% of positions short. Similarly, there is no notable difference between the buy (48%) and sell (52%) orders.
Other brokers also report that the sentiment among their clients is neutral with respect to the Cable. In case of OANDA the share of bulls decreased from 56 to 53%, while in the case of Saxo Bank, the Denmark-based broker, percentage of long positions fell even harder, namely from 56 to 51%.
Spreads (avg, pip) / Trading volume / Volatility
Traders' forecasts remain stable
Traders have not materially changed their view on GBP/USD since the beginning of July, with the average forecast fluctuating slightly in the range between 1.32 and 1.30 dollars. However, the actual percentage of people who voted for this interval is only 5%, and merely 11% of traders voted for the 1.30-1.34 interval, where the currency pair has been trading since the beginning of July. The most popular answer choice was the 1.36-1.38 interval, which was chosen in 15% of cases. At the same time, 43% of traders expect the Cable to be above 1.34 and 47% of traders expect the rate to be below 1.30 in three months.