- The number of sell commands edged higher from 53 to 59%
- Bearish traders' sentiment returned to its Wednesday's level of 60%
- The group of levels around 1.5340 are preventing the pair from edging higher
- The bottom target is the cluster around 1.5185
- 55% of traders reckon GBP/USD will be at 1.54 or lower in three months
- Upcoming events today: US Retail and Core Retail Sales, US PPI and Core PPI, UK CB Leading Index, US Preliminary UoM Consumer Sentiment and Inflation Expectations, US Business Inventories
Due to lack of market movers, Sterling profit taking occurred against some major peers on Thursday. The Pound lost 0.78% versus the Aussie, 0.52% against the Euro and 0.31% against the Swiss Franc; however, gains were also registered, namely against the Kiwi (0.38%) and the Loonie (0.36%). The British currency also remained relatively unchanged against the Japanese Yen, losing only 0.07%, and the US Dollar, adding 0.13%.
The UK unemployment rate dropped to the lowest level in seven years in the third quarter, extending an improvement in the labour market, the Office for National Statistics reported. The jobless rate declined to 5.3%, whereas economists had expected the rate to remain unchanged at 5.3%. However, the claimant count increased for the third consecutive month, up by 3,300 in October to 795,500. Despite the improvement in the headline numbers, the report also showed some weakening in the pace of wage growth. Earnings excluding bonuses climbed an annual 2.5% in the reported period, down from 2.8% in the previous three months and missing expectations for a reading of 2.6%. Total pay rose 3%, due to a 15% surge in bonuses.
The BoE's November Inflation Report showed labour demand growth had remained robust, and both wage and productivity growth had picked up since last year, but remained below pre-crisis rates. The new forecasts also showed the central bank saw the unemployment rate falling further to 5.3% in the fourth quarter of this year, then remain around that level throughout next year, before sliding slightly to 5.2% in Q4 2016.
US Retail and Core Retail Sales
All events concerning the UK economy today are to have small or no impact on the Sterling, therefore attention should be paid to the US fundamentals. The most important events are the Retail and Core Retail Sales. The Retail Sales are released by the US Census Bureau and measure the total receipts of retail stores. Monthly percent changes reflect the rate of changes of such sales. Changes in Retail Sales are widely followed as an indicator of consumer spending. The Core Retail Sales exclude automobile sales, also being the "advance" report, which can be revised fairly significantly after the final numbers are calculated. Both of the given events are forecasted to improve, but the PPI (YoY) – to worsen, which might act as a counterweight if all data meets expectations. The MoM PPI, however, is likely to show strong figures as well, boosting the US currency.
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 at the beginning 2016."
GBP/USD struggles to maintain trade above 1.52
In spite of the Cable dropping under the immediate support cluster in the early hours yesterday, the pair still ended the day on the green side, adding 23 pips. This time the Sterling has little chance of appreciating against the US Dollar for the fifth day in a row. The cluster around 1.5185 remains the nearest support, but if the US fundamentals fall in line with the forecasts—the Pound then risks falling to 1.51 or even lower. However, despite a number of signs indicating a decline today, a disappointment in fundamentals might contribute to the GBP/USD's recovery.
Daily chart
The GBP/USD confirmed the support trend-line yesterday, but upside volatility was still limited by the 200-hour SMA. The trading range is becoming narrower, as neither the up-trend, nor the 200-hour SMA are allowing the Sterling to move. Nonetheless, a break in either direction is imminent today, which the US fundamentals will determine.
Hourly chart
Bears still prevailing over bulls
Bearish traders' sentiment returned to its Wednesday's level of 60%, while the number of sell commands edged higher from 53 to 59%.
The distribution between the bulls and bears at OANDA slightly change since yesterday, as 53% of open positions are short and 47% are long. Meanwhile, the proportion of bulls at SAXO Bank remained unchanged for another day, with the gap between short and long positions still being rather narrow. Bulls still take up 52% of the market, while bears-the remaining 48%.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.54 in three months
There appears to be no clear view in the market how the Cable is going to perform during the next three months, but 55% of survey participants reckon that GBP/USD will be at 1.54 or lower. Judging by the results of the poll conducted in October, 15% of traders expect the Sterling to cost either between 1.48 and 1.50, or between 1.50 and 1.52 US dollars in the middle of February. At the same time, 11% of the estimates are that the UK currency will be worth somewhere between 1.54 and 1.56 US dollars in three months. The mean forecast for Feb 13 at 1.5357.
Meanwhile, this week sentiment among Dukascopy traders has significantly strengthened, as now 68% of traders predict the Pound to lose value, while last week this scenario was suggested by 28% of Community members.
Among slightly less than a third of all traders expecting a positive outcome for the Cable, zumba suggests that the GBP/USD is in a wedge pattern, which may seem bullish with a first and second resistances from 1.55 to 1.56.
At the same time, Jignesh, another member of the Dukascopy Community, believes the GBP/USD has finally been pushed off a cliff. "The pair has been moving sideways lower since late June, however, momentum was lacking," he said. The fundamental events that unfolded last week, in his opinion, set the two currencies on diverging paths. Jignesh suggests 1.50 may be a potentially strong support, while the overall outlook is rather weak.