- Only 42% of all orders are to buy the Sterling
- Bearish traders' sentiment returned to its Wednesday's level of 61%
- Immediate resistance is represented by the 55-day SMA and weekly R1 around 1.5315
- The 20-day SMA at 1.5262 is now the nearest support
- 62% of traders reckon GBP/USD will be at 1.54 or lower in three months
- Upcoming events today: UK Public Sector Net Borrowing, FOMC Member Dudley Speech
The Pound declined against most major peers on Thursday, due to disappointing Retail Sales figures. The largest losses were recorded versus the Kiwi (1.07%) and the Aussie (0.80%), followed by moderate declines of 0.34% versus the Euro and 0.3% against the Swissie. Nonetheless, the Sterling managed to appreciate 0.35% and 0.23% against the Greenback and the Loonie, respectively.
British retail sales declined below forecasts in October following a strong performance in the preceding month, the Office for National Statistics reported. This was mainly driven by a sharp fall in clothing and food store sales, which dropped 1.8% and 1.3%, respectively. UK retail sales volumes fell 0.6% month-on-month in October after an increase of 1.7% in September. The figure came against analysts' forecasts of a 0.5% drop on month. Excluding auto fuel, retail sales declined 0.9% from September's growth of 1.5%, thus, being also beyond the projected 0.6% decrease. Measured on an annual basis, retail sales revealed disappointing results as well. Growth in retail sales including auto fuel dropped 3.8% in October from 6.2% in the previous month. Economists expected sales to expand by 4.5%. Excluding auto fuel, retail sales gained 3% compared with September's rise of 5.7%. Analysts' projected a 3.9% increase.
In the meantime, British manufacturers reported a decrease in new orders in the current month due to the biggest fall in export demand since January 2013. In general, the balance of total orders improved to -11% on a monthly basis in November, slightly worse than the expected -10%, however, up from October's -18%.
UK Public Sector Net Borrowing
With no important fundamental events from the US scheduled for today, all focus is shifted to the UK Public Sector Net Borrowing. It is the difference in value between spending and income for public corporations, central government and local governments during the previous month. A fall in the borrowing is a good sign for the UK economy and should strengthen the British Pound against other major peers if the data does not disappoint.
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 in limbo before UK Public Sector Net Borrowing
The GBP/USD reached as high as the 200-day SMA on Thursday, but lost some of the gains and closed under 1.53. Today the Cable is stuck in tight range between the 20 and 55-day SMAs and might maintain trade within this area today due to lack of market movers. A correction is still the most probable outcome, with a possibility of the immediate support failing to hold the losses. Technical studies are supporting this scenario, but one fundamental event could provide the Sterling with sufficient strength to pierce the nearest resistance levels and even retest the 200-day SMA at 1.5340.
Daily chart
The Cable remained anchored to the 1.53 major level yesterday, with the exchange rate refusing to leave this area today as well. The support around 1.5220 remains strong and should limit the losses, but a rally towards 1.5350 is more likely to take place.
Hourly chart
Bears still prevailing over bulls
Bearish traders' sentiment returned to its Wednesday's level of 61%, whereas no changes in the buy and the sell order ratio occurred.
Both OANDA and SAXO Group retain a bearish outlook towards the GBP/USD. At OANDA, 54% of traders are holding short positions and the remaining 46% - long. Meanwhile, the share of bears at SAXO Group is taking up 58% of the market (previously 57%).
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 (62%) 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 more than a fifth, namely by 23% of the voters, while the second choice in popularity was the 1.50-1.52 price range, but selected by only 13% of participants. Meanwhile, the mean forecast for Feb 20 is 1.5296.
Meanwhile, the sentiment for the Cable divided equally during past seven days. The median expectation for Friday of this week is placed around the 1.510 level.
This week Jignesh is expecting the British currency to outperform the US Dollar. He believes the GBP/USD has had a slow and steady rise after the hysteria of the NFP numbers. "There has not been any signs of reversal as of yet, and for the reason it's likely this slow incline will continue," Jignesh said. "However, as the pair moves higher it becomes more and more attractive to the USD Bulls, for that reason we can anticipate a top this week," he added.
Meanwhile, a trader with a bearish outlook, Dariusz, believes that the Cable might continue lower versus the Buck due to the traders' sentiment. Dariusz said that "a key caveat is that recent GBP/USD move above $1.5150 leaves little notable resistance until congestion zones surrounding $1.5250 and $1.5350."