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GBP Riding Rising Rate Expectations; USD Hasn't Bottomed Yet

GBP Riding Rising Rate Expectations; USD Hasn't Bottomed Yet

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- After the BOE said that markets were underpricing the odds of a rate rise in the next few months, traders have started to drag forward expectations of a BOE rate hike in November.

- DXY Index tested its daily 21-EMA again this week, but still has not closed above it since June 22.

- Retail crowd positioning has eased, but remains near extreme levels in a few USD-pairs.

Upcoming Webinars for Week of September 10 to September 15, 2017

Friday at 9:45 EDT/13:45 GMT: Live Event Coverage: UofM US Consumer Confidence (SEP P)

See the full DailyFX Webinar Calendar for other upcoming strategy sessions

With the Bank of England saying yesterday that markets were underpricing the odds of a rate rise in the coming months, the British Pound has been given new life, soaring to fresh 2017 highs versus the Japanese Yen, Swiss Franc, and US Dollar.

A dramatic shift in rates pricing has been the driving factor behind the moves in GBP/CHF, GBP/JPY, and GBP/USD. Whereas at the start of this week rates markets were pricing in approximately a one-in-five chance of a 25-bps hike at the BOE's meeting in November, today they've soared to 64%, providing all the ammunition the British Pound needed to move to the topside.

The mutli-month symmetrical triangle breakout in GBP/CHF and the multi-month ascending triangle breakout in GBP/JPY suggest that British Pound strength will stay in vogue and is not just a passing fad. With the next BOE meeting not until November 2, there is plenty of time for market pricing to shift more and drive the GBP-crosses further.

Elsewhere, one of our big focuses this week was on monitoring the US Dollar for signs that a bottom could be developing. Given price action seen this week, It's still far too soon to say that a low is in place for the US Dollar.

The DXY Index once again tested its daily 21-EMA this week, only to fail to close above it; it hasn't closed above its daily 21-EMA since June 22. Aside from the daily 21-EMA (now at 92.43), traders may want to wait for further confirmation for a DXY Index low until the August 25 bearish outside engulfing bar is cleared out at 93.44.

See the above video for technical considerations in the DXY Index, EUR/USD, GBP/USD, USD/JPY, USD/CHF, GBP/CHF, and Gold.

Read more: Webinar: Live Event Coverage: BOE Rate Decision

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher's e-mail distribution list, please fill out this form

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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