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GBP/USD Rallies Despite Wait-and-See BoE; Short-Squeeze in Play?

GBP/USD Rallies Despite Wait-and-See BoE; Short-Squeeze in Play?

David Song,

Talking Points:

- GBP/USD Pushes to Fresh March High Even as BoE Sits Pat; Short-Squeeze on Tap?

- USDOLLAR Extends Decline Following Dovish FOMC- Dudley, Rosengren in Focus.

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GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • GBP/USD climbs to a fresh monthly high even as the Bank of England (BoE) votes unanimously to retain its current policy in March; seems as though the U.K. referendum remains the biggest hurdle for the Monetary Policy Committee (MPC) as central bank officials remain upbeat on the economy and argue that the next move will be to normalize monetary policy.
  • Even though the BoE sticks to a wait-and-see approach, the British Pound stands at risk for a short-squeeze amid the growing divergence between price and the Relative Strength Index (RSI), which may fuel speculation of an inverse head-and-shoulders pattern.
  • Nevertheless, the long-term outlook remains tilted to the downside as the BoE lags behind its U.S. counterpart, with the next topside hurdle coming in around 1.4668 (February high) followed by 1.4815 (2016 high).
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd remains net-long GBP/USD since November 19, with the ratio hitting an extreme in January as it climbed above +3.00.
  • Nevertheless, retail sentiment continues to come off of the extreme reading as it narrows to +1.03 as 51% of traders are now long, while open interest stands 4.2% below the monthly average.

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USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index11863.9411974.6611860.5-0.84178.94%
USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • The USDOLLAR remains under pressure as the Federal Open Market Committee (FOMC) scales back their economic outlook and curbs interest-rate expectations; may see the greenback face additional headwinds over the near-term as Fed Chair Janet Yellen adopts a more dovish outlook for monetary policy.
  • Even though the U. of Michigan Confidence survey is expected to increase to 92.2 from 91.7 in February, fresh comments from New York Fed President William Dudley and Boston Fed President Eric Rosengren, both 2016 FOMC voting-members, may further dampen the appeal of the greenback should the central bank officials talk down bets for higher borrowing-costs.
  • As the USDOLLAR struggles to find support, a close below 11,900 (78.6% retracement) raises the risk for a move back towards 11,789 (August low).

Read More:

US Dollar – Breakdown Continues, Reprieve Ahead?

AUD/USD Post-FOMC Rally at Risk Ahead of Australian Labor Report

Long-term Low in Silver?

Long Term Cyclical Influence Nears for AUD/USD

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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.