- Sell orders take up 55% of the market
- 53% of all open positions are long
- The Bollinger band and the weekly R1 form support around 1.4550
- Resistance is around 1.4630, represented by the monthly R1 and the weekly R2
- 51% of traders reckon GBP/USD will be at 1.44 or higher in three months
- Upcoming events: UK Preliminary GDP, US Goods Trade Balance, US Pending Home Sales, US Crude Oil Inventories, FOMC Statement, Federal Funds Rate
On Tuesday the Pound prolonged its gains across all other major currencies, but struggling to outperform the commodity-based ones. The Sterling surged the most against the safe haven Yen (0.78%), as risk appetite caused the Yen to weaken ahead of the BoJ meeting. Another significant rally of 0.69% was seen against the US Dollar, triggered by poor readings of US Durable and Core Durable Goods Orders, while the Pound also added 0.53% versus the Swissie and 0.41% against the Euro. Somewhat rebounding commodity prices boosted the Aussie, the Kiwi and the Loonie, as the British currency managed to edge only 0.25%, 0.05% and 0.10% higher against them, respectively.
Orders to US factories for long-lasting manufactured goods increased less than expected in March, while a key category that tracks business investment plans remained weak for a second month. The Commerce Department reported orders for durable goods, items meant to last three years or more, climbed 0.8% last month following a downwardly revised 3.1% decrease in February. Non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, were unchanged after a downwardly revised 2.7% decline in the prior month. Manufacturing, which makes up 12% of the US economy, is faltering due to the lingering effects of the Dollar's past strength and weak overseas demand. Prospects for 2016 remain uncertain. Some economists believe that factories should see an increase in demand since the Greenback has stopped rising versus other currencies. The global economy also seems to have stabilized after a shaky start to the year. However, other analysts are uncertain about how long it might take for manufacturing to rebound.
Meanwhile, the mood among American shoppers surprisingly fell in April. The Conference Board's measure dropped to 94.2 in April from a downwardly revised 96.1 in March. The present-situation index advanced to 116.4 in April from 114.9 a month earlier, while the expectations index declined to 79.3 from 83.6.
UK Preliminary GDP, Federal Funds Rate and US Pending Home Sales
Among important events today there is the UK Preliminary GDP, which is released by the Office for National Statistics and shows the change in the inflation-adjusted value of all goods and services produced by the economy. Since this is the preliminary data, it tends to have the most impact on the economy and, thus, the currencies. Concerning the US economy, one of the important events is the Pending Home Sales data release. It is a leading indicator of trends of the housing market in the US. It captures residential housing contract activity of existing single-family homes. As the housing market is considered as a sensitive factor to the US economy, it generates some volatility for the USD. However, a more important even is the Federal Funds Rate Decision. With a pre-set regularity, a nation's Central Bank has an economic policy meeting, in which board members took different measures, the most relevant one, being the interest rate that it will charge on loans and advances to commercial banks. In the US, the Board of Governors of the Fed meets at intervals of five to eight weeks, in which they announce their latest decisions. A rate hike tends to boost the local currency, as it is understood as a sign of a healthy inflation. A rate cut, on the other hand, is seen as a sign of economic and inflationary woes and, therefore, tends to weaken the local currency. If rates remain unchanged, attention turns to the tone of the FOMC statement, and whether the tone is hawkish or dovish over future developments of inflation.
GBP/USD poised for more strength
In the wake of deteriorating US fundamentals yesterday the British currency edged 100 pips higher against the Greenback, as the pair failed to maintain trade above the 1.46 major level. Furthermore, the nine-month resistance line was pierced, but the overall trend remains bearish, as the final down-trend around the 1.49 mark is intact. Technical indicators retain bullish signals, suggesting the Cable is to keep edging higher today. The Bollinger band and the weekly R1 are supporting the pair from below, while the nearest resistance is represented by the monthly R1 and the weekly R2 circa 1.4630, where price is expected to close.
Daily chart
The Cable easily surged above the 1.46 mark yesterday, but lost some of its momentum, now struggling to retake the 1.46 level. Upon succeeding, the next target will be the 1.4668 level, namely the Feb high, unless momentum fades and the pair begins falling back towards 1.4366.
Hourly chart
Sentiment at perfect equilibrium
Bulls and bears broke out of the equilibrium, as 53% of all open positions are now long. Sell orders still take up 55% of the market.
At OANDA market sentiment is close to the equilibrium, with only 52% of their open positions being long, two percentage points less from Tuesday. Meanwhile, the sentiment at SAXO Bank remains bearish, with 61% of their traders holding short positions (previously 60%).
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD above 1.44 in three months
The majority of traders (51%) believe the British currency is to cost 1.44 or more dollars after a three-month period. The most popular price interval was selected by 23% of the voters, namely the 1.44-1.46 one, while the second most popular choice implies that the Sterling is to cost between 1.46 and 1.48 dollars in three months, chosen by 18% of the surveyed. At the same time, the mean forecast for July 27 is 1.4263.
Market sentiment is strongly bearish (72%), while attitude towards the Sterling is bearish as well, with the currency being sold in 72% of all cases across the board.
Among the traders with a positive perspective towards the Cable, Trendmaster believes that the GBP/USD has a strong trading uptrend. "Thus, I am expecting the currency pair to remain bullish this week", he commented.
At the same time, Jignesh sticks with the majority, believing the GBP/USD pair is to weaken by week's end. "The GBP remains under some uncertainty without a resolution to Brexit. As the pair approaches previous highs, we are can see sellers coming in to push the pair back into a range that has developed over the past month", he backed his view, also adding that "the area between 4460-4500 will be a significant area for the bears this week to show some pressure."