- The number of purchase orders increased by nine percentage points up to 58
- Bullish SWFX traders' sentiment returned to its Friday's level of 51%
- 17% of the poll participants expect the British Pound to cost between 1.60 and 1.62 dollars after a three-month period
- Immediate resistance lies in face of the 55-day SMA at 1.5601
- The nearest support rests around 1.5560, represented by the 20-day SMA and monthly PP
- Upcoming events today: US Preliminary Unit Labor Costs, US Preliminary Nonfarm Productivity, US Wholesale Inventories, UK CB Leading Index
The British Pound appreciated against most major peers on Monday, with exception against the Loonie. The largest gains were recorded against the Yen, 0.87%, following with 0.63% and 0.62% gains versus the Greenback and the Swissie. However, the Sterling declined 0.40% against the Canadian Dollar, but remained relatively unchanged versus the Euro, adding 0.11%.
Bank of England policymaker David Miles said he had seen a reasonable case to vote for an interest rate hike at the policy meeting last week, but arguments appeared to be inconclusive. Miles eventually voted to maintain the benchmark rate unchanged in August but admitted the decision was not an easy one. Miles said a month earlier that the case for a rate increase was stronger now than at any time in his six-year long rate-setting career, given the UK economy's strength and the falling margin of slack in the labour market to keep inflationary pressures at bay. However, the recent developments including the Pound's strength suggested weaker inflation in the near term. Yet, Miles urged his colleagues to start gently raising borrowing costs sooner rather than later to keep future increases smooth and steady.
Miles was one of eight officials on the nine-member BOE panel to vote to keep rates on hold in August. Ian McCafferty was the sole dissenter, voting for an immediate hike in the central bank's benchmark rate. McCafferty claimed a rate increase was required to keep inflation in check and to ensure that future rate lifts are smooth and gradual. In the BoE's quarterly inflation report forecasts showed that policy makers predict annual inflation to climb back to its 2% goal by the third quarter of 2017 provided that interest rates rise in line with expectations in financial markets.
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.
US Preliminary Unit Labor Costs and Preliminary Nonfarm Productivity
From the UK side there will be no significant enough events to influence the market price today, but from the US side the Preliminary Unit Labor Costs and the Preliminary Nonfarm Productivity are expected to influence the Cable. Although the Unit Labor Costs are anticipated to remain unchanged compared to the previous quarter, there is a good chance we will see better-than-expected figures, as, according to historical data, growth has been present in the past five months. Furthermore, the Nonfarm Productivity is likely to rebound, and even if it fails to meet expectations, it should be outweighed by the Unit Labor Costs, thus, boosting the US Dollar sufficiently to outperform other major currencies.
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 stuck between 1.5560 and 1.56
The Greenback weakened against the Sterling yesterday, after FOMC member Fischer's dovish statement concerning the September interest rate hike. As a result, the Cable soared towards the third resistance area, but closed slightly lower at 1.5585. Weakness is still expected after such a substantial rally, with the support cluster around 1.5560 limiting the losses. However, poor US fundamentals could still push the British Pound even higher above 1.5620, negating last week's losses, as technical indicators remain mixed.
Daily chart
The bullish momentum was regained, as the Sterling surged for over 140 pips yesterday. Although the 200-hour SMA was pierced, the rally stopped near the 1.56 major level and the resistance trend-line. The Cable appears to be stuck between the SMA and the trend-line, but as the trading range is narrowing, a break in either direction is possible.
Hourly chart
Bulls barely prevailing over bears
SWFX traders' sentiment returned to its Friday's level of 51%, with bulls barely remaining in the majority. The number of purchase orders increased by nine percentage points, up to 58%.
Other market participants now have a different outlooks towards the GBP/USD. The SAXO Group traders' sentiment shifted to the bearish side once again, as 51% of all their positions are now short (previously 47%). At the same time, OANDA's market sentiment broke out of the equilibrium, with bears prevailing over bulls, as 55% of their positions are short today.
Spreads (avg, pip) / Trading volume / Volatility
17% of the poll participants expect the British Pound to cost between 1.60 and 1.62 dollars after a three-month period
According to the survey conducted between July 11 and August 11, 17% of traders assume the GBP/USD currency pair will cost between 1.60 and 1.62 dollars within three months. However, the second place now divided between three price intervals, namely 1.52-1.54, 1.56-1.58 and 1.58-1.60, all three selected by 12% of the surveyed. The mean forecast for November 11, on the other hand, is 1.523.