- The number of buy orders slid from 60 to 45%
- Bullish market sentiment returned to its Tuesday's level of 64%
- Main resistance is around 1.4260
- The nearest support is represented by the weekly PP at 1.4151
- 53% of traders reckon GBP/USD will be at 1.44 or lower in three months
- Upcoming events: UK MPC Official Bank Rate, UK Monetary Policy Summary, UK Asset Purchase Facility, US CPI and Core CPI, US Jobless Claims, FOMC Member Powell Speech, MPC Member Shafik Speech
Another day of relatively poor performance was in store for the British currency on Wednesday. The Sterling weakened mostly against the commodity currencies, namely 0.43% against the Kiwi, while barely edging lower against the Aussie (0.08%) and the Loonie (0.04%). The largest loss, however, was registered against the US Dollar, triggered by renewed ‘Brexit' fears. Gains, on the other hand, were seen against the Swissie and the Euro, with the Pound adding 0.72% and 0.49% against them, respectively. At the same time, the GBP/JPY inched only 24% higher.
UK consumer price inflation jumped to 15-month high, rising to 0.5% from previous 0.3% this month, according to the Office for National Statistics. The reason for such an increase was a rise in the cost of air fares over Easter and more expensive spring and summer clothing ranges hitting stores. Air fares advanced 22.9% month-on-month this March, compared with increase of 2.7% in March 2015. Meanwhile, City analysts were surprised to see such a data release, since they had expected inflation to stay near zero or climb to 0.4%. However, other analysts emphasised that the longest periods of low inflation in a generation is likely to come to an end over the coming months, since higher petrol and import prices along with the rising average wages from the low Pound fed into the figures.
In addition to that, an unexpected increase in the UK CPI is likely to effect on the Bank of England's decision on its monetary policy. The central bank is widely expected to keep its policy rate unchanged at 0.5% on Thursday's monetary meeting, but some analysts say the recent firming of inflation is laying the groundwork for tightening in the months ahead. In the meantime, very important data on core inflation performance showed the measure rose to 1.5% in annual terms. This increase is to further put a pressure on the BoE policy monetary policy decision.
UK Monetary Policy Summary and the US CPI
At 11:00 AM GMT the BoE's Official Bank Rate decision and the Monetary Policy Summary are due. No changes in the rate hike are expected, but the tone of Monetary Policy Summary could help the Sterling erase today's intraday losses, triggered by ‘Brexit' fears. Concerning economic data releases, attention should be paid to the US CPI and Core CPI today. The Consumer Price Index, released by the US Bureau of Labor Statistcs, 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 USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. The Core CPI excludes the food and the energy sectors. The US Jobless Claims are also to be released. The Initial Jobless Claims released by the US Department of Labor is a measure of the number of people filing first-time claims for state unemployment insurance. In other words, it provides a measure of strength in the labor market. A larger than expected number indicates weakness in this market which influences the strength and direction of the US economy. However, the Jobless Claims tend to have a mild impact on the exchange rates.
GBP/USD prolongs bearish trend
With the return of ‘Brexit' fears the Pound declined against the US Dollar yesterday, also bouncing back from the four-week down-trend. The Cable retains its weakness today, therefore, is likely to drop at least towards the nearest support, namely the weekly PP at 1.4151. However, bears might even push the GBP/USD currency pair even lower, with the 1.41 level getting pierced again. The second target will then be around the 1.40 mark, but the bearish momentum is unlikely to edge below the 1.4050 level, as it prevented the given pair from slumping since the beginning of March. Furthermore, technical studies are bolstering the possibility of the bearish outcome.
Daily chart
The GBP/USD currency pair appears to have lost its steam after breaking out from the falling wedge pattern. The 200-hour SMA failed to provide support earlier today, which caused the Cable to slump again. The main target is now the 1.4050 level, which kept the pair elevated for slightly more than a month.
Hourly chart
Sentiment remains bullish
Bullish market sentiment returned to its Tuesday's level of 64%, up from 61% yesterday. The number of buy orders slid from 60 to 45%.
Concerning the sentiment of other market participants, OANDA has a neutral outlook towards the Cable, as 50% of their open positions are long, compared to 55% on Wednesday. Meanwhile, the sentiment at Saxo Bank remains close to the equilibrium, with 51% of all open positions now being long and the remaining 49% being short.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.44 in three months
The majority of traders (53%) believe the British currency is to cost 1.44 or less dollars after a three-month period. The most popular price intervals were selected by 32% of the voters (equally divided), namely the 1.44-1.46 and 1.46-1.48 ones, while the second most popular choice implies that the Pound is to cost between 1.38 and 1.40 dollars in three months, chosen by 15% of the surveyed. At the same time, the mean forecast for July 14 is 1.4266.
This week the sentiment changed a little, as the same number of our weekly quiz participants expect the pair either to gain value or to decline. The average forecast for the end of the current week slightly went up, namely to 1.415.
Likerty, a member of the Dukascopy Community, shared his view on the GBP/USD pair's performance. "I suppose the Pound has the most bullish potential against US Dollar (of all majors)," he commented.
At the same time, Jignesh said that even though it is quite likely that Brexit fears are exaggerated, the market continues to put pressure on the GBP. "Last week the pair pierced through major support at 1.4050 and took stops with it. The downside here continues to be supported by the monthly bullish engulfing candle, though this is likely to be the last week the pair will look to be bid as the brief bullish sentiment of May continues to negate over time," he added.