- Buy orders edged up from 49 to 54%
- Only 55% of all positions are long today
- 16% of traders assume the Sterling will cost around 1.50 or 1.52 dollars in three months
- The potential upper limit is now at 1.5637, the Bollinger band
- A support, represented by the weekly PP, rests at 1.5461
- Upcoming events today: UK CPI, UK PPI, UK RPI, US Building Permits, US Housing Starts
The Sterling was one of the best-performing currencies on Monday, as it appreciated against most major peers, with exception against the Aussie. The British Pound added the most versus the Swissie (0.35%), the Loonie (0.30%, the Yen (0.29%) and the Buck (0.26%). A lesser gain of 0.12% was detected against the Euro, whereas the Sterling remained relatively unchanged versus the Kiwi. However, a 0.20% loss was recorded against the Australian Dollar.
UK manufacturing production dropped unexpectedly in April, while industrial output beat economists' expectations. According to the Office for National Statistics, manufacturing production fell by a seasonally adjusted 0.4% in the reported month, against the consensus forecasts for a 0.1% increase, and following 0.4% gain in March. Measured on an annualized basis, manufacturing output climbed at rate of 0.2%, missing estimates for a gain of 0.4%, after surging at a rate of 1.2% in March. Meanwhile, total industrial production climbed 0.4% from March, overshooting economists' expectations for a 0.1% gain. Oil and gas extraction jumped 8.7%, the biggest increase in more than a year.
At the same time, the latest report by the National Institute of Economic and Social Research suggested that the UK economy gained momentum in the three months through May. The NIESR estimate showed the British economy grew 0.6% in the quarter to May, following the upwardly revised 0.5% growth in the three months to April. NIESR expected the Bank of England to hike interest rates in the first quarter of 2016. In its latest quarterly estimate published earlier in May, NIESR forecast annual economic output growth of 2.5% in 2015 and 2.4% in 2016.
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 CPI and US Building Permits
The UK CPI is considered to be the UK's most important inflation data, as it is used as the BoE's inflation target. Although the inflation figures for April showed the first in history negative figure, a gradual rebound is expected today. Mark Carney, the governor of BoE, forecasted rather low inflation in the upcoming months in the UK, but stated that it is likely to pick up by the end of this year. Furthermore, later in the day the US Building Permits data will be released, with the forecast predicting a declined, compared to the preceding data release. However, the data might surprise to the upside, since a rebound after winter is possible; but according to the forecasts, the Cable is likely to extend its rally for another day.
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 refuses to give up its bullish trend
Despite experiencing strong volatility to the downside, the GBP/USD currency pair still managed to end the day higher. However, the Bollinger band prevented the Cable from edging higher, forcing the Sterling to close trade just under the 1.56 psychological level. The Sterling is expected to climb up for another day today, in spite of technical indicators showing mixed signs. The Bollinger band, now at 1.5632, still acts as an immediate resistance, but there is also a possibility of a hike towards 1.57 major level, which is also bolstered by the weekly and monthly R1s.
Daily chart
Even though the Sterling started falling during the morning session yesterday, it found support at the trend-line, which pushed the currency back up. As a result, all daily losses were negated, while the 1.56 level was briefly overcome.
Hourly chart
Traders stay net long
Bulls keep losing ground, as only 55% of all positions are long today, while the buy orders edged up from 49 to 54%.
OANDA now has a slightly less bullish sentiment with respect to the Cable. The SAXO Bank, however, now has a lot more bears than bulls. In the first case, 53% of open positions are long, while in the second 62% are short.
Spreads (avg, pip) / Trading volume / Volatility
Only 16% of traders now assume the Sterling will cost around 1.50 or 1.52 dollars in three months
The survey participants keep lifting the expectation plank higher, as the majority (56%) still assume the Sterling will cost more than 1.54 dollars after a three-month period. However, the most popular choice is now between 1.50 and 1.52, chosen by 16% of the voters. The second place is divided between the 1.54-1.56 and 1.60-1.62 price intervals, both selected by 13% of the surveyed. Meanwhile, the mean forecast for September 16 is 1.5513.