- The share of buy orders slid from 57 to 54%
- 58% of all open positions are long
- The nearest resistance is the weekly R1 around 1.3110
- Immediate support is at 1.3046
- 50% of traders reckon GBP/USD will be at 1.30 or higher in three months
- Upcoming events: UK Average Earnings Index, UK Claimant Count Change, UK Unemployment Rate, US Crude Oil Inventories, FOMC Meeting Minutes, FOMC Member Bullard Speech
On Tuesday, the Office for National Statistics has revealed the UK's inflation rate on the yearly basis which is still quite weak. Nevertheless, slight increase could be noted compared to the previous month, namely from 0.5% to 0.6%. Many economists would prefer to see a rate around 2%. According to the announcement, consumer price index measure of inflation went up from 0.5% in June, and was also pushed by advance in alcoholic drinks and accommodation. Economists, in turn, had expected inflation to remain unchanged during the previous month. The following numbers show the highest inflation since November 2014. Meanwhile, the Retail Price Index, which is another inflation measure, expended by 1.9% in July being highly above forecasts of a rise of 1.6%. In the meantime, RPI is used to set rail fares for next, train fares on around half of UK journeys – including all season tickets and day returns – will increase by 1.9% from next January. Inflation has been a major concern for the Bank of England as it has for other major central banks.
Eventually, the British Pound jumped by about 60 pips following the release. Moreover, the GBP/USD was already modestly higher on general dollar weakness prior to the CPI data, but is now currently rising by about 73 bps to $1.2974.
UK employment data and FOMC Minutes
Today from the UK side attention should be paid to the employment data, such as the Unemployment Rate and the Claimant Count Change. The Claimant Count Change, also known as Jobless Claims, is the change in the number of people who claim unemployment benefits. It is correlated with the Unemployment Rate. Both are generally viewed as lagging indicators, but the data is still important, as it has a significant impact on the country's monetary policy. From the US side there are no important economic data releases, but the FOMC Meeting Minutes is due today. FOMC stands for the Federal Open Market Committee, that organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy.
GBP/USD risks falling back under 1.30
The fundamentals turned in Sterling's favour on Tuesday and along with the strong support cluster around 1.2850 caused a substantial rally in the Cable. Consequently, the Pound almost completely erased all previous week's losses, having closed just on top of the weekly R1. However, technical studies keep giving bearish signals, suggesting that a correction after such a surge is likely to take place. A decline then would cause the GBP/USD pair to fall back under 1.30. On the other hand, a lot depends on the FOMC Minutes today, where a dovish statement could spark more Pound-buying, with the ceiling seen as far as 1.3170, where the weekly R2 coincides with the monthly PP.
Daily chart
On the hourly chart the GBP/USD currency pair broke out of the descending channel pattern yesterday and even climbed over the 200-hour SMA, which is now providing support at 1.30. A drop below the 1.30 mark now seems unlikely, but a sharp bullish development is also doubtful, the Cable could now be in for a period of consolidation.
Hourly chart
Still no consensus
Bullish sentiment worsened over the day, as 58% of all open positions are now long. Meanwhile, the share of buy orders slid from 57 to 54%.
Indecision appears to be widespread, as the same neutral sentiment is observed among the traders of other brokers. At OANDA, 59% of positions are long and 41% are short. The sentiment at Saxo Bank is now less bullish than before, as the numbers of longs and shorts each take up 54% and 46% of the market, respectively.
Spreads (avg, pip) / Trading volume / Volatility
Votes are equally distributed
Exactly half of traders (50%) believe the British currency is to cost 1.30 or more dollars after a three-month period. The most popular price interval, however, was selected by 16% of the voters, namely the 1.24-1.26, while the second most popular choice implies that the Sterling is to cost between 1.34 and 1.36 dollars in three months, chosen by 14% of the surveyed. At the same time, the mean forecast for Nov 17 is 1.3105.