- Sell orders take up 51% of the market
- Market sentiment remains bullish at 57%
- 16% of traders assume the Sterling will cost around 1.50 or 1.52 dollars in three months
- The potential upper limit is now 1.5601, the Bollinger band
- A support, represented by the weekly PP, rests at 1.5461
- Upcoming events today: US Capacity Utilization Rate, US Industrial Production, US NAHB Housing Market Index, US Empire State Manufacturing Index
The British currency performed rather well over Friday, with exception against the Swiss Franc. The Sterling gained the most against the Kiwi, the Aussie and the Loonie, adding 0.69%, 0.60% and 0.51%, respectively. Lesser gains were recorded against the US Dollar (0.28%), the Yen (0.25%) and the Euro (0.20%). However, the Pound did sustain losses versus the Swiss Franc, declining 0.21%.
UK manufacturing production dropped unexpectedly in April, while industrial output beat economists' expectations. According to the Office for National Statistics, manufacturing production fell by a seasonally adjusted 0.4% in the reported month, against the consensus forecasts for a 0.1% increase, and following 0.4% gain in March. Measured on an annualized basis, manufacturing output climbed at rate of 0.2%, missing estimates for a gain of 0.4%, after surging at a rate of 1.2% in March. Meanwhile, total industrial production climbed 0.4% from March, overshooting economists' expectations for a 0.1% gain. Oil and gas extraction jumped 8.7%, the biggest increase in more than a year.
At the same time, the latest report by the National Institute of Economic and Social Research suggested that the UK economy gained momentum in the three months through May. The NIESR estimate showed the British economy grew 0.6% in the quarter to May, following the upwardly revised 0.5% growth in the three months to April. NIESR expected the Bank of England to hike interest rates in the first quarter of 2016. In its latest quarterly estimate published earlier in May, NIESR forecast annual economic output growth of 2.5% in 2015 and 2.4% in 2016.
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 rather be a story of Dollar strength rather than Sterling weakness.
US fundamentals taking over the steering wheel
Today no relevant data releases concerning the UK economy are expected. Nonetheless, a number of US releases are due later in the day. All of the figures are likely to improve compared to their previous values, but the most important one is, probably, the US Industrial Production. The Factory Output rate is expected to rebound from -0.3% to 0.2%, thus showing signs of improvement and boosting the American Dollar. Another data release with a rather significant anticipated improvement is the Empire State Manufacturing Index, which should rise from 3.1 to 5.8, indicating more economic health in the US.
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 ends bullish trend
After experiencing some volatility, the Cable managed to edge higher for the fifth consecutive day last week, rather than falling down. The weekly R2 at 1.5562 limited the gains, but as the pair gets closer to 1.56 psychological level, risks of the tide turning grow. The 1.56 level is also bolstered by the Bollinger band, making it a solid resistance, while the weekly PP supports the Sterling from below at 1.5461. Technical studies retain bearish signal, suggesting the Pound is to undergo a correction today.
Daily chart
On the hourly chart we can see the Cable extended its bullish trend for another day on Friday, despite a small setback in the preceding day. The Sterling tested the 1.56 psychological level, which pushed the GBP/USD pair back down and forced to undergo a correction. More weakness is expected today, capped by the Thursday low near 1.5420.
Hourly chart
Traders stay net long
Although not as strong as on Friday, but market sentiment remains bullish at 57%. Sell orders reclaimed the majority of the market, taking up 51%.
The situation at OANDA improved, as the broker now has an even more bullish sentiment with respect to the Cable. The SAXO Bank, on the other hand, still has more bears than bulls. In the first case, 54% of open positions are long, while in the second 56% are short.
Spreads (avg, pip) / Trading volume / Volatility
Only 16% of traders now assume the Sterling will cost around 1.50 or 1.52 dollars in three months
The survey participants keep lifting the expectation plank higher, as the majority (58%) still assume the Sterling will cost more than 1.54 dollars after a three-month period. However, the most popular choice is now between 1.50 and 1.52, chosen by 16% of the voters. The second place is divided between the 1.54-1.56 and 1.62-1.64 price intervals, both selected by 15% of the surveyed. Meanwhile, the mean forecast for September 15 is 1.5539.