- The portion of orders to acquire the British currency edged down from 77 to 64%
- 60% of traders now hold long positions (previously 59%)
- 18% of traders still expect the Sterling to cost between 1.48 and 1.50 dollars in three months
- Closest resistance is at 1.5343, the weekly PP
- Nearest support is located around 1.5216, represented by the 55-day SMA
- Upcoming events today: UK Official Bank Rate, UK Asset Purchase Facility, US Jobless Claims, US Revised Nonfarm Productivity
The Sterling experienced mixed performance on Wednesday, as it sustained serious losses and gained some value against several major peers. The Pound added 0.39% against both, the Loonie and the Kiwi, whereas a decline of 1.11% was detected against the Euro, following with a 0.20% fall versus the Aussie. However, the British currency remained relatively unchanged against the Yen (0.08%), the Swiss Franc (0.07%) and the US Dollar (-0.01%).
Activity growth in the UK economy's engine, the services sector, slowed, questioning the economy's ability to recover from a soft start to the year. The services PMI declined to 56.5 in May, compared with 59.5 in the preceding month. In the first three months of the year, the UK's economy grew by 0.3%, official figures showed, slowing from the 0.6% growth seen in the final quarter of 2014. The UK services sector is by far the largest part of the economy, accounting for about three quarters of economic activity. The Sterling fell by a cent versus the US Dollar, to $1.5262, after Markit's latest report on the sector. At the same time, the annual UK house price index rose at the slowest level in the last 21 months, resuming the gradual downward trend that has started since the summer of 2014. House prices rose 0.3% in May compared to the previous month, bringing down the annual growth rate to 4.6% compared to 5.2% in April, Nationwide, one of the largest building societies and mortgage providers in the UK, reported. The average price of a house in the UK stood at 195,166 pounds in May, up from 193,048 pounds a year ago.
Meanwhile, the OECD said Britain's recovery would slow this year, as falling unemployment and strong domestic demand fails to offset a slowdown in investment. While the think-tank expects that the UK economy will grow at a "solid" pace of 2.4% this year, this was down from its forecast of 2.6% in February. Growth in 2016 is expected to be 2.3%, compared with an earlier prediction of 2.5%.
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 rather be a story of Dollar strength rather than Sterling weakness.
BoE Interest Rate and US Jobless Claims
The UK rate decision is due today. The policy makers are expected to leave the interest rates unchanged at a record low of 0.50% this month; however, they are also expected to be risen until the end of 2015. Moreover, the US Unemployment Claims are anticipated to slightly decrease today, showing good signs for the US economy and, thus, boosting the US Dollar. The change in Jobless Claims is likely to be insignificant and, therefore, the impact on the Buck not as high.
Ross Walker, economist at Royal Bank of Scotland Group, shared his view on the short-term forecast for the Cable. He mentioned that GBP/USD has a moderate sell-off and that it could be down to high 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross also 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 in tight range between 1.52 and 1.54
After a substantial gain on Tuesday, the Cable was pressured down on Wednesday. The GBP/USD attempted to appreciate, but the 200-day SMA pushed it back down to 1.5250; however, the trade closed a lot higher at 1.5324. Despite a strong resistance cluster located near 1.54, we expect the Sterling to outperform the US Dollar today and, possibly, breach the 1.54 barrier. Nonetheless, there is risk of the Pound falling down to a support cluster around 1.5175, as technical indicators are still giving bearish signals in the daily timeframe.
Daily chart
Although the Sterling bounced back from the 100-hour SMA yesterday, it managed to erase some losses. Nevertheless, the SMA prevented the Cable from edging higher and keeps doing so up till today. A hike today would help the Pound settle above the SMA, boosting the chances of maintaining growth.
Hourly chart
Bulls keep prevailing over bears
Bulls keep gaining numbers, as 60% of traders now hold long positions (previously 59%). The portion of orders to acquire the British currency edged down from 77 to 64%.
The SAXO Bank traders' sentiment reached a perfect equilibrium, with 50% of all positions being long and short. Meanwhile, the sentiment among OANDA traders slightly worsened, as 52% of their positions are now long.
Spreads (avg, pip) / Trading volume / Volatility
18% of traders expect the British pound to cost between 1.48 and 1.50 dollars in three months
The majority of the Dukascopy community now expects the Sterling to cost less than 1.56 dollars in the months. Nonetheless, the most popular price interval remains between 1.48 and 1.50, but selected by 18% of the traders, while the second most popular price interval is divided between 1.60-1.62 and 1.62-1.64, chosen by 12% of the surveyed each. Meanwhile, the mean forecast for September 4 is 1.5559.
At the moment of writing, Dukascopy traders were strongly bearish on the Cable, since 100% of all positions were short. The following tendency persists in extremely rare cases, when almost all the traders are voting for the pair's negative development. The consensus forecast suggests that the couple will end this trading week at 1.521, down from the last week's close at 1.552.
Since all of the traders hold short positions on the Cable, we don't have any contradicting opinions this week, the votes were unanimous. However, one of the community members, geula4x, commented on why he has a bearish outlook towards the Sterling. He said that "GBP/USD seems very bearish on the daily chart. Price has dropped sharply from May 14 1.5800 highs." The trader expects the Cable to retest the support around 1.5088 this week again.