- 57% of orders are to purchase the Sterling
- 65% of all open positions are long
- The nearest resistance is located around 1.4150
- The Monthly S2 and the weekly S1 form support circa 1.4080
- 54% of traders reckon GBP/USD will be at 1.46 or higher in three months
- Upcoming events: UK Average Earnings Index, UK Claimant Count Change, UK Unemployment Rate, US PPI and Core PPI, Empire State Manufacturing Index, US Capacity Utilization Rate, US Industrial Production, US FOMC Statement, US Federal Funds Rate
Driven by political factors, mainly by ‘Brexit' polls, the Sterling weakened against most major peers on Tuesday. The largest losses of 1.19%, 1.17% and 1.09% were registered against the Swiss Franc, the safe-haven Yen and the American Dollar, respectively. However, falling oil prices reduced the losses against commodity currencies, with the GBP/CAD edging 0.75% lower and the GBP/AUD inching 0.62% lower. At the same time, the Pound remained relatively unchanged against the New Zealand currency, with the pair sliding down 0.06%.
The UK inflation unexpectedly held steady in May against predictions for a small increase, as ongoing declines in clothing and food prices offset rising pressure from fuel prices. The Office for National Statistics reported that Britain's cost of living remained at 0.3% last month compared with a year ago, slightly below economists' forecasts for a 0.4% annual rise. Upward pressure on inflation in May came from transport costs as motor fuel prices jumped 2.7% compared with 1.9% a year earlier. At the same time, downward pressure came from food and non-alcoholic drinks, which declined 0.4%, and from clothing, which slipped 0.2% compared with a 0.5% increase a year ago.
Bank of England policymakers gather this week amid expectations they will hold off lifting the benchmark interest rate from a record-low 0.5% until early 2017. Britain's inflation has been below the 2% target for more than two years, and the central bank forecasts are for a gradual increase with the rate only returning to the goal in mid-2018. Moreover, there is speculation that borrowing costs could even be reduced to support the economy if Britain votes next week to exit the European Union.
FOMC Statement is the main driver today
Most impact on the GBP/USD pair today is likely to be by 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 Federal Reserve 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 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. Prior to that a number of fundamental data is likely to steer the Cable before the FOMC statement is due.
GBP/USD attempts to regain some value
Yesterday weak UK CPI data, as well as the concerns over the upcoming EU referendum, caused the GBP/USD currency pair to close with a 155-pip loss. The second support cluster, namely the monthly S2 and the weekly S1 just under the 1.42 major level, succeeded in limiting the losses. Demand at that area appears to be strong enough to even trigger a rebound today; technical indicators are somewhat bolstering that possibility, as they are no longer giving bearish signals in the daily timeframe. In case of a rally the closest resistance in face of the Bollinger band is likely to be pierced, opening the door to the price of 1.42 dollars.
Daily chart
The Cable remains in a bearish trend, but with the 1.41 major level somewhat providing support and preventing the pair from reaching the next target – the April low of 1.4005. The 200-hour SMA also keeps sliding down, indicating that more bearish momentum could follow.
Hourly chart
Bulls and bears remain in balance
Bulls grew in number over the day, as 65% of all open positions are now long. Meanwhile, there are 57% of orders to purchase the Sterling.
Compared to Tuesday, there are also slightly more bulls at OANDA - they take up 58% of the positions open with the Canada-based broker. Sentiment at Saxo Bank is now bullish, as here the number of bulls exceeds the number of bears by two percentage points.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD above 1.46 in three months
The majority of traders (54%) believe the British currency is to cost 1.46 or more dollars after a three-month period. The most popular price interval was selected by slightly less than a fifth (17%) of the voters, namely the 1.46-1.48 one, while the second most popular choice implies that the Sterling is to cost between 1.52 and 1.54 in three months, chosen by 13% of the surveyed. At the same time, the mean forecast for Sep 15 is 1.4593.
The consensus forecast for Friday stands at 1.434, almost in line with the last week's average price of 1.44. The number of those who expect the pair to appreciate or move to the south, is almost equal to each other.
Nuonrg believes that the British Pound is to edge higher against the by week's end. "The Pound has come down into the neckline from the daily head and shoulders pattern. Although the Cable is weak on Brexit danger," he said, backing up his outlook.
Meanwhile, rokasltu thinks that the Sterling is to weaken against the US Dollar by Friday. Rokasltu said the following: "As Brexit chances seems to be increasing I think GBP will be under pressure during next week. In my opinion GBP/USD might decrease by few hundred pips during this week."