- Share of sell orders grew from 60 to 66%
- 50% of traders and long and 50% are short
- Pair is well-positioned for a recovery to 1.32
- Floor is seen at 1.31
- 59% of traders reckon GBP/USD will be at 1.30 or lower in three months
- Upcoming events: UK Halifax HPI, US Non-Farm Payrolls, Average Hourly Earnings, Unemployment Rate
As markets expected, the Bank of England (BoE) introduced a range of additional monetary policy measures and upgraded its growth and inflation forecasts at its August meeting on Thursday amid Britain's decision to leave the European Union. All nine members of the Monetary Policy Committee voted anonymously to cut the main lending rate to a record low 0.25% from 0.50%. Furthermore, the central bank expanded its quantitative easing (QE) programme to 435 billion pound from 375 billion pound, while markets expected the BoE to leave its QE scheme unchanged. Three of nine policymakers voted unanimously against the decision.
The latest batch of surveys showed that the UK economy contracted at its steepest pace and may even slip into recession following the Brexit vote, however, the BoE kept its 2016 economic growth forecast unchanged at 2.0%, as the UK economy had a stronger than expected performance in the first half of the year. Nevertheless, the central bank lowered its 2017 growth forecast to 0.8% from an earlier estimate of 2.3%, while the 2018 estimates were slashed to 1.8%. Moreover, the BoE increased its 2018-2019 inflation forecast to 2.4% amid weakness in the Sterling.
NFP to return below 200K
Today's non-farm payrolls are expected to come in more in line with what we saw in spring, namely around 180K, after 287K we saw a month ago, when the actual release was more than 100K higher than the consensus forecast. At the same time, the market consensus is that growth in average hourly earnings will accelerate from 0.1 to 0.2%.
GBP/USD plummets under 1.32
A more dovish tone from the BOE pushed the price further away from 1.3350 and below 1.32, which we expected to hold. Nevertheless, support at 1.31, which played an important role in the second half of July, remains intact, meaning that if not a full-blown recovery, there is likely to be at least an upward correction to 1.32. Even in case 1.31 is broken, there is still a massive demand area between 1.29 and 1.28, where the monthly S1 merges with the July low and the lower bound of the two-and-a-half-year-old channel.
Daily chart
GBP/USD is currently well-positioned for an upward correction following yesterday's sell-off. If the US releases do not surprise to the upside, there is a good chance the price will rise to the 200-hour SMA at 1.32.
Hourly chart
Neutral sentiment
The market remains divided on where the Cable is headed, being that 50% of traders and long and 50% are short. In the meantime, the share of sell orders keeps increasing: compared to the yesterday's figure it grew from 60 to 66%.
Exactly the same distribution between the bulls and bears is observed at Saxo Bank. The percentage of long positions is higher at OANDA - 54%, but the sentiment may still be considered neutral, as the gap is insignificant, merely eight percentage points.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.30 in three months
More than half of traders (59%) believe the British currency is to cost 1.30 or less dollars after a three-month period. The two most popular price intervals were selected by 25% of the voters each, namely the 1.24-1.26, while the second most popular choice implies that the Sterling is to cost between 1.28 and 1.30 dollars in three months, chosen by 19% of the surveyed. At the same time, the mean forecast for Nov 01 is 1.307.