- Share of sell orders is considerably higher than the share of buy orders: 63 and 37% respectively
- Amounts of long and short positions are nearly equal
- Expect a sell-off from 1.3080
- Current target is 1.28
- 59% of traders reckon GBP/USD will be at 1.30 or lower in three months
- Upcoming events on Tuesday: UK Manufacturing Production, US Unit Labour Costs, Non-Farm Productivity
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.
Waiting for Tuesday
As there are no major events today, we have an opportunity to prepare for tomorrow's releases. The main report will be on UK manufacturing production, which is expected to remain unchanged after contracting 0.5% a month before. From the US side of the currency pair, non-farm productivity is to show growth of 0.5% after -0.6% in the previous quarter. On the other hand, according to the consensus of the market, unit labour consts are likely to increase significantly less than 4.5% reported three months ago.
GBP/USD heads towards 1.28
The immediate outlook on the Cable is bearish, as the currency pair once again failed to break through supply at 1.33 last week. The exchange rate is thus likely to fall some 250 pips before the bulls will have a good opportunity to take control of the price. The floor is seen as far as 1.28, where the lower bound of the channel developing in the weekly time frame merges with the July low, which was reached as a result of the sell-off initiated by the ‘Brexit' vote. Meanwhile, only weekly technical indicators are mostly bearish.
Daily chart
Negative near-term outlook is confirmed in the hourly chart, where GBP/USD broke through 1.3080 that was an important support level previous two weeks. The pair also established an accelerated down-trend, which also implies a sell-off from 1.3080 and down to 1.28.
Hourly chart
Still no consensus
At the same time, market sentiment does not confirm a negative bias towards the Sterling, as the amounts of long and short positions are nearly equal. Nevertheless, the share of sell orders is considerably higher than the share of buy orders—63 and 37% respectively.
Indecision appears to be widespread, as the same neutral sentiment is observed among the traders of other brokers. At OANDA, 53% of positions are long and 47% are short. A perfect balance between the bulls and bears is at Saxo Bank, where the numbers of longs and shorts take up a half of the market each.
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.