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GBP/USD Topside Targets in Focus Amid Tightening Race Between BoE/Fed

GBP/USD Topside Targets in Focus Amid Tightening Race Between BoE/Fed

David Song, Strategist

Talking Points:

- GBP/USD Topside Targets in Focus Amid Tightening Race to Normalize Policy.

- AUD/USD Risks Larger Rebound as RBA Continues to Endorse Neutral Stance.

- USDOLLAR Continues to Carve Bearish Formation Following Cautious Fed.

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GBP/USD

GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • GBP/USD may continue to retrace the decline from the previous month as it breaks out of the tight range and carves a series of higher highs & lows; waiting for a break of the bearish RSI momentum carried over from back in May to favor a longer-term advance for Cable.
  • With Bank of England (BoE) board member Minouche Shafik schedule to speak in the days ahead, signs of a greater dissent within the central bank may heighten the appeal of the sterling as there appears to be a tightening race with the Federal Reserve to normalize monetary policy.
  • DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long GBP/USD since August 21, but the ratio remains off of recent extremes as it sits at +1.23, with 55% of traders long.

AUD/USD

AUD/USD Daily Chart
  • AUD/USD may face a larger rebound as price & RSI fail to retain the bearish formation from May; need a close above former-support around 0.7220 (23.6% expansion) to 0.7240 (100% expansion) for confirmation/conviction for a move higher.
  • Even though the Reserve Bank of Australia (RBA) Governor Glenn Stevens refrains from commenting on the exchange rate, the central bank may have little choice but to toughen the verbal intervention on the local currency and remains at risk of further reducing the benchmark interest rate amid growing speculation for a recession in the $1T economy.
  • Break/close above former-support brings up the next topside target around 0.7380 (50% retracement) to 0.7390 (78.6% expansion).

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Read More:

The Weekly Volume Report: Accumulation or Distribution in USD/JPY?

Keep an Eye on USD/JPY as US Dollar at Risk of Major Trend Reversal

USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index11914.6211929.6511865.68-0.02122.13%
USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • With the Federal Reserve adopting a more dovish outlook for monetary policy, the near-term decline in the Dow Jones-FXCM U.S. Dollar may gather pace in the days ahead following the close below the Fibonacci overlap around 11,951 (38.2% expansion) to 11,965 (23.6% retracement).
  • Even though the final 2Q Gross Domestic Product (GDP) report is expected to show the growth rate expanding an annualized 3.7.%, a marked slowdown in demand for U.S. Durable Goods may further reduce the appeal of the greenback as it drags on the outlook for growth and inflation.
  • Waiting for a close below 11,898 (50% retracement) to 11,901 (78.6% expansion) to open the door for a move back towards the next downside region of interest coming in around 11,826 (61.8% expansion) to 11,843 (38.2% retracement).

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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