- Trader pending orders are 58% to sell
- SWFX market sentiment is 62% bullish
- Immediate resistance is at 1.2544
- The closest support is around 1.24
- Upcoming events: UK CPI, UK PPI Input, UK RPI, UK Inflation Report Hearings, US Retail and Core Retail Sales, US Import Prices, US Empire State Manufacturing Index
Donald Trump's surprising election victory combined with the post-Brexit uncertainty raised the question of whether the European Central Bank should provide additional monetary stimulus or not. The Central bank so far avoided talks about the future path of its Quantitative Easing program, which releases 80 billion euros a month into the economy and is set to run until at least March of 2017. Nevertheless, analysts widely expect the ECB to unveil more stimulus measures at its next meeting on December 20 amid the uncertainty over Trump's policy. Most analysts anticipate the Bank to extend its bond-purchasing program by at least six months. However, the market reaction to Donald Trump's unexpected win in the 2016 US election was less extreme than after the Brexit vote in June.
Although the Euro zone is set to continue its recovery, results of the upcoming elections in Austria and Italy's referendum on constitutional changes, as well as next year's elections in France, Germany, and Netherlands could weigh on business sentiment and lower economic growth going forward into 2017. Following Mario Draghi's speech on Monday, the Euro depreciated 1.3% against the US Dollar, as well as dropped around 0.4% against the British Pound.
UK CPI and US Retail Sales are the main events today
Tuesday brings a number of fundamental economic data, that could potentially influence the GBP/USD pair's exchange rate. From the UK side the most important event will be the CPI, which is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. The "Core" CPI, however, excludes seasonally volatile products, such as good and energy, in order to capture an accurate calculation. Another event will be the PPI Input. It is a monthly measurement of the rate of inflation experienced by the UK manufactures when buying goods and services. It captures changes in the average price of a fixed basket of goods and services purchased by the UK Manufactures. Later today the US Census Bureau is to release the Retail Sales and Core Retail Sales figures. The Retail Sales measure the total receipts of retail stores. Monthly percent changes reflect the rate of changes of such sales. Changes in Retail Sales are widely followed as an indicator of consumer spending. In Core Retail Sales the automobile sector is excluded. Finally, the US Import Price Index is due, which 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.
GBP/USD in limbo around 1.25
Following yesterday's outlook, the Cable's fate is to be determined today. Technically, signs are pointing to a possible bullish development today, with the GBP/USD pair being supported by an up-trend just below the opening price and technical studies retaining positive signals. A successful rally would preserve the rising wedge pattern, allowing the Sterling to reclaim 1.26 once again. On the other hand, risks of a breakout are also present, which would put the monthly PP into perspective, but with the 1.24 major level most likely remaining intact today.
Daily chart
On the hourly chart the rising wedge pattern is seen more clearly, but apart from the daily one, here the pattern's lower boundary is reinforced by the 200-hour SMA. Consequently, this suggests the GBP/USD pair is to rebound today and make its way up again, eventually touching the upper border of the wedge.
Hourly chart
Traders mostly bullish
Market sentiment remains bullish, with 62% of all open positions still being long. At the same time, the share of sell orders barely changed, having fallen from 59 to 58% over the last 24 hours.
A similar situation is observed elsewhere. For example, 63% of positions open at OANDA are currently long. This is more than the share of shorts (37%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 61% of traders being long and 39% 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 1.24, the average forecast for November 15 is 1.2186. Furthermore, the 1.18-1.20 interval is now the most popular one, having 19% of the votes. On the second place in terms of the votes is the 1.16-1.18 (13%) interval, followed also by the 1.14-1.16 interval with only 11% of the votes. Moreover, 74% all survey participants believe the Cable is to fall under 1.26.