- The share of sell orders takes up 55% of the market
- SWFX market sentiment remains bullish at 60%
- Main resistance is the weekly PP and the 55-day SMA around 1.4320
- The nearest support is now the weekly S1 point at 1.4192
- 60% of traders reckon GBP/USD will be at 1.44 or lower in three months
- Upcoming events: BoE Official Bank Rate, UK Asset Purchase Facility, UK Monetary Policy Summary, US Philly Fed Manufacturing Index, US Jobless Claims, US Current Account, US JOLTS Job Openings
The British Pound retained its weakness yesterday, despite strong employment figures. The Sterling suffered the most against commodity currencies, edging 1.20%, 1.08% and 0.51% lower versus the Loonie, the Kiwi and the Aussie, respectively. Minor losses were alos registered against the Swiss Franc (0.29%) and the Euro (0.24%). At the same time, the Cable soared 0.76%, whereas the GBP/JPY inched only 23% to the upside.
The UK economy posted some better than expected data on the labour market, which continued on a strong footing in January. Britain's unemployment rate remained unchanged at 5.1%, the lowest level in a decade, for the third month in a row, indicating the labour market continued to tighten markedly at the beginning of the year. Despite the headline jobless rate remained steady, the number of Britons applying for unemployment allowance continued to decrease for the sixth straight month, dropping by 18,000 in February. Moreover, British wages increased more than expected in the three months to January, but remained below pre-crisis levels and are unlikely to rise sharply this year, in the light of weakening domestic economy which faces a referendum on the UK's membership of the European Union in June and a slowing global economy. Total earnings including bonuses climbed 2.1% on the year in the three months to January, compared with 1.9% in the fourth quarter and against a forecast of 2.0%.For the month of January alone wages jumped 2.5%, the biggest rise since August, after a 1.7% increase in December.
At the same time, earning without bonuses rose 2.2% in the three months to January, up from 2.0% in the prior month. The Bank of England had estimated that wage growth would be 1.75% in the fourth quarter of 2015 and rise to 3% by the end of 2016.
BoE statement and Philly Fed Manufacturing Index
Among important events today the most influential is the BoE's Monetary Policy Summary and Interest Rate decision. Even though no rate changes are expected, the Sterling is still likely to strengthen against most major currencies afterwards. Concerning the economic data releases, the Philly Fed Manufacturing Index and the US Current Account are the events to pay attention to. The Philadelphia Fed Survey is a spread index of manufacturing conditions (movements of manufacturing) within the Federal Reserve Bank of Philadelphia. This survey, served as an indicator of manufacturing sector trends, is interrelated with the ISM manufacturing Index (Institute for Supply Management) and the index of industrial production. It is also used as a forecast of The ISM Index. The Current Account is released by the Bureau of Economic Analysis and is a net flow of current transactions, including goods, services, and interest payments into and out of the US. A current account surplus indicates that the flow of capital into the US exceeds the capital reduction. Figures of both events are forecasted to improve.
GBP/USD muted ahead of BoE decision
The British Pound managed to recover from its intraday low yesterday, amid a dovish Fed statement. As a result, the monthly PP was once again confirmed as a strong support, as it pushed the Cable to close 40 pips under the 1.43 target. Technical indicators retain their bullish signals today, suggesting that another rally is likely to take place, this time pushing the GBP/USD currency pair above 1.43. The weekly PP and the 55-day SMA form a rather strong resistance cluster around 1.4320, which could provide sufficient supply to limit the gains. In case bears prevail, the monthly PP at 1.4141 is still the bottom floor.
Daily chart
As was first expected, the British Pound climbed over the 200-hour SMA on the hourly chart yesterday, which now serves as a support. The Cable might extend its recovery and even reach the 1.44, unless sharp USD-buying causes another drop towards yesterday's low, namely to 1.4050.
Hourly chart
Sterling overbought in SWFX
Although not as strong as yesterday, but SWFX market sentiment remains bullish at 60% (previously 65%). The share of purchase orders edged 11% points lower, they now take up 45% of the market.
A similar but to a lesser extent attitude is observed at OANDA, where 56% of open positions are long, one percentage point less than yesterday. On the other hand, SAXO Bank traders broke out of equilibrium, being that 45% of positions are long and 55% are short.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.44 in three months
The majority of traders (60%) believe the British currency is to cost 1.44 or less dollars after a three-month period. The most popular price interval was selected by 18% of the voters, namely the 1.34-1.36 one, while the second most popular choice implies that the Pound is to cost between 1.48 and 1.50 dollars in three months, chosen by 15% of the surveyed. At the same time, the mean forecast for June 17 is 1.4216.
Concerning the Community Forecasts, the pair is expected to continue moving sideways this week, as consensus forecast stands for 1.423, just 3 pips below the daily pivot. Additionally, almost equal number of participants is having a bullish and bearish outlook on the pair, while market sentiment is slightly bearish.
On the bullish side of the barricade Jignesh believes that the USD is once again under pressure, and bulls area finding value in the GBP/USD as it trades in the multi decade support zone. "Dips below 1.40 are considered value buys for swing traders and for that reason this pair is well supported. Overhead resistance comes in at 1.4650 - 1.4700. As the pair remains in a longer term down trend and risks of Brexit have not yet subdued", he added.
At the same time, a trader with a bearish outlook, bakafx, suggests that "the bullish reaction on GBP/USD has limit in fundamental study so I am expecting new bearish leg with price between 200 MA on 4H at 1,4269 and WP at 1,4309."