- 60% of all pending orders are to sell the Sterling
- 65% of traders hold long positions
- Immediate resistance is at 1.2254
- The closest support is at 1.2132
- Upcoming events: US Jobless Claims, US Import Prices, US Crude Oil Inventories
On Wednesday the Fed released the minutes of its September meeting, once again refraining from raising interest rates. Several FOMC members expressed desire to raise rates, while others stated that a rate hike would be required 'relatively soon'. It was the first time in five years when more than two officials voted for an immediate rate hike. Some Fed policy makers still have concerns over the strength of the labor market and inflation, thus, more evidence of US economic growth is required. Inflation has been below the Fed's 2% target, namely at 1.7%, but it was still argued that the levels are quite close to expectations and there are few signs of inflationary pressures.
Some argue that the Fed was somewhat hawkish, but these minutes had little impact on the markets, as they brought more uncertainty, not necessarily suggesting a rate hike will occur in December, despite Fed Chair Jannet Yellen and several other officials stating that they would raise rates by year's end if inflation and employment figures keep improving. Although there are two more Fed meetings scheduled in 2016, a move in November has been basically ruled out due to US presidential elections. According to CME Group's data, a December rate hike is currently seen with a probability of slightly more than 60%.
US Initial Jobless Claims and Import Price Index
On Thursday only data from the US side is due, such as the Initial Jobless Claims and the Import Prices. The Initial Jobless Claims are released by the US Department of Labor and are a measure of the number of people filing first-time claims for state unemployment insurance. In other words, it provides a measure of strength in the labor market. A larger than expected number indicates weakness in this market, which influences the strength and direction of the US economy. The Import Price Index, however, informs the changes in the price of imported products into the US. The higher the cost of imported goods, the stronger the effect they will have on inflation, redunding in a higher probability of a rate rise. Generally, a high reading should be taken as positive for the USD, while a low reading is seen as negative.
GBP/USD remains on the back foot
The Cable retreated from its intraday high after the FOMC Meeting Minutes were released yesterday, but still managed to reclaim the 1.22 level. Nevertheless, technical indicators are now giving bearish signals, implying that the Pound is to weaken further. However, price is expected to remain above 1.21, with the Bollinger band acting as the closest support today. The main target is still the 1.1950 level, the lowest level in more than 30 years, which is also bolstered by the weekly S1. This key support area is expected to trigger a rally, causing the Pound to eventually to climb back towards 1.24.
Daily chart
On the hourly chart the GBP/USD pair was seen trading in the middle between the descending channel's borders. We expect another retest of the lower boundary, as it would confirm the daily outlook. However, the Cable might struggle to fall below the 1.21 level and rebound earlier if a market mover turns into its favour.
Hourly chart
Traders mostly bullish
There are 65% of traders holding long positions today (previously 63%), while 60% of all pending orders are to sell the Sterling (down from 61%).
A similar situation is observed elsewhere. For example, 59% of positions open at OANDA are currently long. This is more than the share of shorts (41%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 68% of traders being long and 32% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect no major changes
By the end of the next three months traders expect the Cable to be higher than the level where it is now. While the current price is around 1.23, the average forecast for January 13 is 1.2929. Furthermore, the 1.28-1.30 interval is now the most popular one, having 14% of the votes. On the second place in terms of the votes is the 1.32-1.34 (13%) interval, followed by the 1.30-1.32 price range with 12% of the votes each. Moreover, 53% all survey participants believe the Cable is to fall under 1.30.