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GBP/USD Breaks Down on Weak U.K. Core CPI; Retail FX Still Net-Long

GBP/USD Breaks Down on Weak U.K. Core CPI; Retail FX Still Net-Long

David Song,

Talking Points:

- GBP/USD Under Pressure on Weak U.K. Core CPI- Retail Position Moving Back to Extreme.

- USDOLLAR to Mount Larger Rebound on Bullish RSI Trigger.

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GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • GBP/USD stands at risk for a further decline as it fails to preserve the range carried over from earlier this month, with a close below 1.4350 (23.6% retracement) opening the door for a move towards 1.4078 (2016 low).
  • With the core U.K. Consumer Price Index (CPI) slowing to an annualized 1.2% from 1.4%, the disinflationary environment may keep the Bank of England (BoE) on the sidelines throughout 2016 as the central bank curbs its economic forecast.
  • The U.K. Jobless Claims report may further dampen the appeal of the sterling as Average Weekly Earnings are projected to narrow to annualized 1.8% from 1.9% in November.
  • Looks as though price may follow the Relative Strength Index (RSI) as it failed to retain the rebound from earlier this year, with the oscillator starting to carve a fresh bearish trend.
  • The DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long GBP/USD since November 19, with positioning hitting an extreme in January as the ratio climbed above +3.00.
  • After hitting an extreme earlier this year, retail position appears to be on the move again the SSI climbs back to +2.41, with 71% of traders now long.

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USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index12106.1712110.8712049.140.2097.84%
USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Even though U.S. data fall short of market expectations, the USDOLLAR may continue to retrace the decline from earlier this month as the RSI threatens the bearish formation from earlier this year.
  • The Federal Open Market Committee (FOMC) Minutes may boost the appeal of the greenback as Chair Janet Yellen remains upbeat on the economy and sees the central bank on course to achieve the 2% inflation target over the policy horizon.
  • Despite the failure to hold near-term support around 12,049 (78.6% retracement), a bullish RSI trigger may encourage a larger rebound in the USDOLLAR as the FOMC appears to be on course to further normalize monetary policy in 2016.

Read More:

EUR/USD – Breakout Hangs in the Balance

USD/JPY Technical Analysis: Best 2-Week Run For JPY Since 1998

Crude Oil Turn in the Pipeline?

USD/JPY - The Abenomics Test

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--- Written by David Song, Currency Analyst

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

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