- The share of orders to acquire the British Pound declined from 58 to 54%
- 51% of all positions remain long
- 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 1.5605
- The nearest support rests around 1.5560, represented by the 20-day SMA and monthly PP
- Upcoming events today: UK Average Earnings Index, UK Claimant Count Change, UK Unemployment Rate, FOMC Member Dudley Speech, US JOLTS Job Openings, US Crude Oil Inventories, US Federal Budget Balance
The Sterling performed rather well on Tuesday, with exception against the Euro and the Greenback. The largest gains accounted for 1.34% and 0.93% against the Aussie and the Kiwi, respectively, following with lesser ones against the Loonie (0.68%), the Swissie (0.44%) and the Yen (0.36%). However, the British Pound lost 0.25% versus the Euro and remained relatively unchanged against the US Dollar, losing 0.01%.
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.
UK Average Earnings Index, UK Claimaint Count Change and US JOLTS Job Openings
Several important fundamental events are due today, which are likely to influence the GBP/USD exchange rate. The UK Average Earnings Index is the change in the price, that business and government pay for labor. It is an important event as it is directly correlated with consumer spending, as higher labor costs tend to increase the consumer's willingness to buy goods or services. The Average Earnings Index is forecasted to decline from 3.2 to 2.8%, having a serious impact on the Sterling. Another significant event is the UK Claimant Count Change; it shows the number of people applying for unemployment benefits in the preceding month. The number of people is expected to fall from 7 to 1.5 thousand, which would be a significant improvement and, thus, boost the British currency. Furthermore, from the US side the JOLTS Job Openings, the number of job openings, excluding the farming industry, are likely to remain relatively unchanged, therefore, having a lesser impact on the Cable. However, the New York Fed President is to speak at 12:30 PM GMT today, whose speech could bring back certainty to a certain degree about a September interest rate hike or some future date this year. Finally, the PBoC's actions, which keeps devaluing the Yuan for the second day, also acts beneficially on the US currency, boosting in against the Asian peers and against the Sterling to some extent.
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 keeps failing to retake 1.56
The Cable experienced some volatility on Tuesday, trading within the borders of the monthly PP and weekly R1. Ultimately, the pair remained relatively unchanged, having lost only three pips. Nevertheless, technical studies now shifted to the bearish side, suggesting the Sterling is to weaken against the US Dollar again today. Although the immediate support remains around 1.5560, a fall towards the weekly PP at 1.5520 is more likely, especially if the fundamental data disappoints a lot more than anticipated.
Daily chart
The Cable was mainly stuck around the 200-hour SMA yesterday, as its attempts to edge higher were limited by the resistance trend-line. Right now the Sterling keeps pushing upwards, inching closer to the trend-line again, which is expected to cause the GBP/USD to bounce back and result in decline by the end of the day.
Hourly chart
Bulls barely prevailing over bears
Bulls remain rather weak, as still only 51% of positions are long. Meanwhile, the share of orders to acquire the British Pound declined from 58 to 54%.
Other market participants now have a different outlooks towards the GBP/USD. The SAXO Group traders' sentiment remains unchanged, with 51% of all positions being short. At the same time, OANDA's market sentiment slightly improved, with 54% of their traders holding short positions, compared to 55% previously.
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 12, 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 shifted back to the 1.58-1.60 price interval, selected by 13% of the voters. The mean forecast for November 12, on the other hand, is 1.5717.
This week the sentiment changed a little, as the bullish mood still persists. The average forecast for the end of the current week went down, namely to 1.559 mark.
Although the sentiment remains bullish, the gap is now not that wide. Williamb, one of the Dukascopy poll participants, said that the Bank of England seems to be more aggressive than the Fed in terms of their interest rate decision. That was the main reason why he has a bullish perspective towards the GPB/USD. However, Nacerdz, another member of the Dukascopy community, expects the US Dollar to outperform the Pound by the end of the week. "My vision is bearish based on the technical analysis tools", he mentioned.