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GBP/USD Outlook Mired by Growing Threat for U.K. Exit

GBP/USD Outlook Mired by Growing Threat for U.K. Exit

David Song,

Talking Points:

- GBP/USD Outlook Mired by Growing Threat for U.K. Exit- Retail Sentiment Back at Recent Extreme.

- USDOLLAR Rebound Gathers Pace on Hawkish Fed Rhetoric- Durable Goods Orders on Tap.

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GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • GBP/USD remains under pressure as the attack in Brussels fuels concerns surrounding the U.K. Referendum; may see the sterling face additional headwinds ahead of the vote in June amid the growing arguments to leave the European Union.
  • With U.K. Retail Sales anticipated to contract 1.0% in February, signs of a slowing recovery may put increased pressure on the Bank of England (BoE) to further delay the normalization cycle even though Governor Mark Carney argues that the next move will be to remove the record-low interest rate.
  • Will keep a close eye on the Relative Strength Index (RSI) as it preserves the bullish formation from earlier this year, but a close below 1.4130 (38.2% expansion) may spur a move back to the 2016 low (1.3834) as the economic outlook for the U.K. remains clouded with high uncertainty.
  • Despite the near-term decline, the DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd is once again net-long GBP/USD, with the ratio hitting a major extreme in January as it climbed above the +3.00 mark.
  • It seems as though the retail crowd is trying to fade the near-term decline in the exchange as the ratio moves back towards near-term extremes, with the figure currently standing at +1.74 as 64% of traders are long.

Why and how do we use the SSI in trading? View our video and download the free indicator here

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USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index12005.6212006.9911942.560.43101.91%
USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Despite the weaker-than-expected U.S. New Home Sales report, the USDOLLAR extends the advance from earlier this week and looks poised for a larger rebound as it continues to carve a near-term series of higher highs & lows; would like to see a break of the bearish RSI formation to favor a further advance going into the end of the month.
  • Fresh rhetoric from Chicago Fed President Charles Evans, Philadelphia Fed President Patrick Harker and St. Louis Fed President James Bullard may have helped to boost the appeal of the greenback as central bank officials turn increasingly upbeat on the economy and see a risk of overshooting the 2% inflation-target especially in 2017.
  • With the USDOLLAR climbing back above 11,951 (38.2% expansion) to 11,965 (23.6% retracement), a close above the key pivot may spur a move back towards 12,050 (78.6% retracement) to 12,082 (61.8% expansion).

Read More:

GBP/USD - Brexit Odds Repricing

EUR/USD – The Abyss Hopefully Leads to Clarity

COT-Small Trader Net Long Position in AUD is Largest Since July 2014

USD/JPY-More at the 110.66 Low Than You Might Think

Get our top trading opportunities of 2016 HERE

--- 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.