Talking Points:
- GBP/USD Retail Sentiment Approaches Extreme Ahead of U.K. Consumer Price Index (CPI).
- USDOLLAR Risks Additional Losses on Slowing U.S. Retail Sales.
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Chart - Created by David Song
- GBP/USD stands at risk for a further decline as it fails to preserve the bullish formation from late-February, and the pair may continue to carve a near-term series lower lows & highs going into the U.K. Referendum on June 23 as the Relative Strength Index (RSI) follows suit.
- Nevertheless, with the headline & core reading for the U.K. Consumer Price Index (CPI) anticipated to rebound in May, a meaningful pickup in inflation may limit the downside risks for the British Pound as the Bank of England (BoE) remains adamant that the next move by the central bank will be to normalize monetary policy.
- Will keep a close eye on the downside targets following the bearish triggers in price & the RSI, with a closing price below 1.4130 (38.2% expansion) opening up the next region of interest around 1.4030 (78.6% retracement) followed by 1.3960 (50% expansion).
- The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-long GBP/USD since May 31, with retail sentiment hitting an extreme back in April as the ratio climbed to +2.00.
- The ratio currently sits at +1.70 as 63% of traders are long, with short positions 17.9% lower from the previous week, while open interest stands 14.4% below the monthly average.
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USDOLLAR(Ticker: USDollar):
| Index | Last | High | Low | Daily Change (%) | Daily Range (% of ATR) |
|---|---|---|---|---|---|
| US Dollar Index | 11889.61 | 11919.83 | 11872.76 | -0.17 | 102.54% |
Chart - Created by David Song
- Failure to test the Fibonacci overlap around 11,951 (38.2% expansion) to 11,965 (23.6% retracement) may produce choppy price action in USDOLLAR especially as market attention turns to the Federal Open Market Committee (FOMC) interest-rate decision on June 15, with a marked revision to the economic projections likely to produce increased volatility in the greenback as market participants weigh the outlook for monetary policy.
- With the U.S. Advance Retail Sales report anticipated to show a 0.3% rise in May versus the 1.3% expansion during the previous month, a meaningful slowdown in household spending may dampen the appeal of the greenback as it undermines Fed expectations for a ‘consumer-led’ recovery in 2016.
- May see the downward trend from earlier this year reassert itself as Fed Funds Futures continue to highlight a close to zero percent probability for a June rate-hike, with a break/close back below 11,836 (61.8% retracement) to 11,843 (38.2% retracement) raising the risk for a move to 11,745 (50% retracement) to 11,759 (23.6% retracement).
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Read More:
S&P 500: Confluence of Technical Events Bolsters Case for the Bears
US DOLLAR Technical Analysis: A Wild Open To June Is Set To Get Wilder
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NZD/USD: RBNZ Breakout Approaching Initial Resistance Targets
--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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