- The portion of purchase orders, dropped from 56 to 53%
- Bulls regained some confidence, as 55% of positions are long today
- 17% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
- The nearest resistance is located at 1.5576, the weekly PP
- Immediate support, represented by the 20-day SMA, lies around 1.5562
- Upcoming events today: UK Public Sector Net Borrowing
The British Pound was one of the worst-performing currencies on Monday, as it declined against most major peers. The Sterling suffered the most from the Kiwi, as it lost 1.19% against it. Lesser losses of 0.30%, 0.25% and 0.22% were detected against the Aussie, the Euro and the Greenback, respectively. Furthermore, the Pound remained relatively unchanged against the Yen, the Swiss Franc and the Loonie, losing 0.09%, 0.11% and 0.15%, respectively.
The Bank of England is predicted to start tightening its monetary policy as late as in the three months through September of 2016, according to EY ITEM Club's latest forecast for the UK economy. That is two quarters later than predicted earlier. The subsequent normalization of the monetary policy is anticipated to be slow. EY ITEM Club expects the base interest rate would climb to 1% by the end of 2016, and 1.75% the year after. The benchmark rate is unlikely to move above 3% until the fiscal adjustment is finally accomplished in 2019, EY ITEM Club's forecast shows. EY's report expressed a rather conservative view on the rate path and came just a few days after BoE Governor Mark Carney said the decision on the timing of policy normalization should come at the turn of this year, while the path of UK policy normalization that comes afterwards is not pre-determined nor linear.
The EY forecast predicts UK economic growth to reach 2.7% for 2015 and 2016, before it slows to 2.4% in 2017 and 2018. Much of the upward momentum would come from solid consumer spending this year, while inflation would remain significantly weak. The forecast sees consumer spending soaring 3.2% this year, and another 2.5% in 2016, before falling to 2% a year from 2017-2019.
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 Public Sector Net Borrowing
The main market mover for today is the UK Public Sector Net Borrowing. The positive number indicates a budget deficit, and the Borrowing is forecasted to decline today, thus, showing signs of improvement in the UK economy. Historical data also supports the fact that improvements in today's report are likely. As a result, we should see the Sterling outperform the US Dollar, since there are no fundamental events from the US side to counteract with the one from the UK side.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 attempts to restore its position above 1.56
The Sterling misbehaved at the beginning of the week, as it sustained minor losses, rather than appreciating against the US currency. The 1.56 level failed to prevent the fall, which led the Cable to close at 1.5568, namely at the 20-day SMA. The British Pound is expected to partially negate yesterday's losses and edge closer to 1.56 again. Furthermore, the 20 and 55-day SMAs have prevented the GBP/USD from declining during the previous four times and should help give rise to a rebound.
Daily chart
On the hourly chart, the GBP/USD appears to be on the verge of declining. After last week's peak the Cable struggled to retain the bullish momentum and slowly began to slide down. Unless the given pair manages to reclaim the 1.56 major level today, more weakness is likely to follow.
Hourly chart
Bulls outnumbering the bears once again
Bulls regained some confidence, as 55% of positions are long today, compared to 52% yesterday. The portion of purchase orders, on the other hand, dropped from 56 to 53%.
Other market participants appear to have a bearish perspective towards the GBP/USD. The SAXO Group traders' sentiment remains bearish, but with 55% of their traders holding short positions (previously 56%). At the same time, OANDA's market sentiment shifted back to the bearish side, as the share of shorts takes up 52% of the market.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
The majority of survey participants expect the British Pound to cost more than 1.56 dollars within a three month period, namely 60% of them. The 1.60-1.62 price interval now has the largest amount of votes, as 17% of traders chose it. The second most popular choice is now taken divided between two intervals, 1.50-1.52 and 1.58-1.60, selected by 13% of the surveyed each. At the same time, the mean forecast for October 21 is 1.5751.