- The number of purchase orders slid from 59 to 39%
- Bullish traders' sentiment returned to its Monday's level of 56%
- The nearest resistance is located around 1.4385
- Immediate support rests circa 1.4188
- 52% of traders reckon GBP/USD will be at 1.42 or lower in three months
- Upcoming events: UK Manufacturing and Industrial Productions, UK NIESR GDP Estimate, US Wholesale Inventories, US Crude Oil Inventories
With another relatively quiet day, the British currency did not experience significant gains or losses. The Pound added 0.60% and 0.46% against two commodity currencies, namely against the Loonie and the Kiwi, respectively, whereas against the third one, the Aussie, the Sterling remained relatively unchanged and edged only 0.04% higher. Against other major currencies, the Pound suffered mild losses, such as 0.35% versus the Buck, 0.32% versus the Swissie and 0.31% versus the Euro. However, there was an exception with the GBP/JPY currency pair, which dropped 1.09% lower, due to an increase in demand for safe haven yen, which in turn was triggered by poor Chinese fundamentals.
The Bank of England is more likely to hike interest rates than to cut them over the course of the next two years, and has plenty of scope to stimulate the UK economy if needed, said Martin Weale. Mr. Weale voted to raise the central bank's key rate during the second half of 2014 but abandoned the call at the beginning of last year. The policy maker also played down the significance of the turbulence in financial markets. Meanwhile, economists pushed back their bets on when the BoE would start to hike rates to early 2017, due to a weaker global economy and stubbornly low inflation. Moreover, Weale said that the BoE could cut rates to lower than 0.5% and introduce a new round of quantitative easing should the necessity arise. The scope of asset purchases could be expanded to include long-term holdings of private sector assets as well as government bonds.
In the meantime, the head of the BoE warned that Britain's potential exit from the European Union could be the single biggest risk to the UK economy. Mark Carney highlighted that the central bank would remain neutral in the debate. However, Mr Carney said that international risks such as recent volatility in China were a greater problem for Britain's economy.
UK Manufacturing Production and NIESR GDP Estimate
The most important economic data releases today are the UK Manufacturing Production, the UK NIESR GDP Estimate and the US Crude Oil Inventories. The Manufacturing Production is released by the National Statistics and measures the manufacturing output. Manufacturing Production is significant as a short term indicator of the strength of UK manufacturing activity that dominates a large part of total GDP. Concerning the NIESR GDP Estimate, it is released by the National Institute of Economic and Social Research, and is an estimate of growth over the last 3 months up to the report which comes out a month before the official announcement. The report is highly reliable and would influence the UK monetary policy. Meanwhile, specifically on the Cable, the US Crude Oil Inventories are unlikely to have a serious impact.
GBP/USD on the verge of falling back under 1.42
As was anticipated, the Sterling weakened against the US Dollar on Tuesday, amid BoE Governor's remarks. Although volatility stretched beyond the immediate support, ultimately, trade closed above it at 1.4217. The outlook remains grim, as technical indicators retain their bearish signals. The Pound is poised for another decline, with the 20-day SMA failing to hold the losses this time. A drop below 1.41 major level is doubtful, as rather strong demand is located around 1.4125, represented by the weekly and the monthly PPs. However, fundamental data could still turn in favour of the Pound and, thus, push the Cable closer towards 1.43.
Daily chart
Although the Cable attempted to breach the resistance trend-line on Monday, the exchange rate returned below the down-trend yesterday. Another breach of the resistance line would make it unviable, but at the moment it could still provide sufficient support and push the GBP/USD towards the 200-houir SMA around 1.4070.
Hourly chart
Three brokers - three sentiments
Bullish traders' sentiment returned to its Monday's level of 56%. Meanwhile, the number of purchase orders slid from 59 to 39%.
The clients of the other two brokers seem to support our sentiment now. OANDA traders are bullish on the UK currency. Right now, 56% of them are long, compared to 56% on Tuesday. At the same time, among Saxo Bank traders all open positions are equally divided between the long and the short ones.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.42 in three months
The majority of traders (52%) believe the British currency is to cost 1.42 or less dollars after a three-month period. The most popular price intervals were both selected by 15% of the voters, namely the 1.36-1.38 and the 1.48-1.50 ones, while the second most popular choice implies that the Pound is to cost between 1.40-1.42 dollars in three months, chosen by 13% of the surveyed. At the same time, the mean forecast for June 9 is 1.4216.
During February 29 – March 4 time period the Dukascopy Community members assumed this currency pair is to increase further, since more than 64% of all votes are bullish. As predicted by traders, the GBP/USD may close around the 1.42 level this Friday.
Besim76, a trader with the positive outlook towards the Sterling, commented that the GBP/USD ended the week up 2.58% on weakness in the US dollar. "The Pound ended at 1.4228 level. The broader outlook for GBP/USD remains tilted to the downside as the BoE lags behind its US counterpart, and the pair may continue to carve a long-term series of lower highs & lows as the threat of an EU exit dampens the fundamental outlook for the UK", the trader added.
Meanwhile, Al-dcdemo expects the British currency to significantly weaken against the Greenback, as "the pullback may have ran its course". "I am expecting further downside on Brexit uncertainty and weaker economic data", he explained his outlook.