- The portion of buy orders remains unchanged at 51%
- 56% of all positions are short
- Immediate resistance is represented by monthly PP and 23.60% Fibo around 1.5185
- The weekly PP and the 20-day SMA around 1.5130 are the nearest support
- 64% of traders reckon GBP/USD will be at 1.54 or lower in three months
- Upcoming events: UK CPI, UK PPI, UK RPI, US CPI and Core CPI, Empire State Manufacturing Index, MPC Member Haldane Speech
The British Pound suffered losses against most major peers on BoE Shafik's remarks. The Sterling dropped the most against the Aussie and the Kiwi, losing 0.97% and 0.78%, respectively. Other significant declines were registered against the Euro, the Loonie and the US Dollar, while the only currency against which the GBP was able to advance was Swiss Franc. The GBP/CHF edged higher 0.11%.
Minouche Shafik, Bank of England Deputy Governor, said she would not vote for an interest rate hike if there is no evidence of sustained growth in wages. After Shafik said she would "proceed with caution" when considering to wean the British economy off the crisis-era level of interest rates, the Pound dropped versus all of its 16 major counterparts, halting its two weeks of rally against the US Dollar. The UK currency also came under pressure as crude oil in New York fell below $35 per barrel for the first time since 2009. The Monetary Policy Committee said last week that low oil prices and sluggish wage gains are raising risk that price growth will take longer to pick up than they currently estimate. A report later in the day is expected to show the UK inflation was just 0.1% in November, far below the central bank's 2%. Shafik said that she expected the recent strength of Sterling to act as a drag on inflation for some time to come.
The BoE's nine-member MPC voted 8-1 to maintain borrowing costs at record low of 0.5% last week. Investors believe the central bank would refrain from hiking interest rates until late 2016 or early 2017 and will have raised it to only 1% in around two-year time. BoE officials led by Governor Mark Carney signalled that an interest-rate increase is likely to be their next move after maintaining ultra-low borrowing costs for almost a decade.
UK and US CPIs
Both from the US and the UK the inflation data is due today. In the UK a number of inflation data are to be released today, with the most important one being the CPI. The Consumer Price Index is released by the National Statistics and is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Although the CPI is forecasted to improve, the PPI could still have a counter-effect, as it is expected to worsen. Also on Tuesday the US CPI and Core CPI are due. The difference between them is that the Core one excludes food and energy, when calculating price change of goods and services purchased by consumers.
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 attempts to recover from Monday's losses
The British currency experienced a rather sharp sell-off on Monday, amid remarks of the BoE official concerning poor nominal wage growth. Higher losses were prevented by the second support cluster around 1.5130, also keeping the pair afloat today during the Asian session. In case the weekly PP and 20-day SMA fail to support the GBP/USD, a slump towards the 1.5038 level, namely the weekly S1, could occur. On the Other hand, a retest of the down-trend at 1.5274 is possible if 55-day SMA resistance gives in and the fundamentals are in the Sterling's favour.
Daily chart
The newly-forming trend-line was unable to hold the pair from falling deeper yesterday, which resulted in a drop towards 1.5110. However, from this point on the GBP/USD began regaining the bullish momentum and positive CPI figures could help the Cable climb above the 23.60% Fibo and extending the recovery.
Hourly chart
Market sentiment now bearish
Bears keep outnumbering the bulls, as 56% of all positions are short. The portion of buy orders, however, remained unchanged at 51%.
OANDA and SAXO Group now both have a negative outlook towards the GBP/USD. At OANDA bulls and bears reached a perfect equilibrium. Meanwhile, the share of bears at SAXO Group is taking up 60% of the market, compared to 69% on Monday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.54 in three months
The majority of votes shifted to the bearish, as most of the survey participants (64%) believe the GBP/USD is going to cost 1.54 or less US dollars in three months. The most popular price interval is the 1.48-1.50, chosen by slightly less than a fifth (18%) of the voters, while the second choices in popularity are again divided between two intervals. The votes imply that the Sterling will cost between 1.46 and 1.48, or less than 1.44 dollars after three months. Both of these price ranges were chosen by 14% of survey participants. Meanwhile, the mean forecast for Mar 15 is 1.5141.