Talking Points:
- GBP/USD Risks Further Losses on Slowing U.K. Wage Growth.
- USDOLLAR Outlook Hinges on Fed’s Updated Economic Projections.
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Chart - Created by David Song
- Despite the limited market reaction to the weaker-than-expected U.K. Consumer Price Index (CPI), GBP/USD extends the decline from earlier this week, with commercial banks in the U.K. tapping GBP 2.46B under the Bank of England’s (BoE) Indexed Long-Term Repo operations (ILTR) as fresh opinion polls highlight a greater threat of the U.K. leaving the European Union.
- Despite forecasts for another 60K expansion in U.K. Employment, a slowdown in Average Weekly Earnings may spur further losses for GBP/USD as the ongoing weakness in price/wage growth drags on interest-rate expectations.
- The bearish tilt in price & the RSI continues to favor the downside targets for Cable, with a close below 1.4130 (38.2% expansion) raising the risk for a move back towards 1.4030 (78.6% retracement), followed by 1.3960 (50% expansion).
- The DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd remains net-long GBP/USD since May 31, with sentiment hitting an extreme back in April as the ratio climbed to +2.00.
- The ratio currently sits at +1.98 as 66% of traders are long, with long positions 26.1% higher from the previous week, while open interest stands 12.8% below the monthly average.
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USDOLLAR(Ticker: USDollar):
| Index | Last | High | Low | Daily Change (%) | Daily Range (% of ATR) |
|---|---|---|---|---|---|
| US Dollar Index | 11927.62 | 11933.66 | 11883.72 | 0.39 | 106.35% |
Chart - Created by David Song
- The USDOLLAR may largely stay capped by the Fibonacci overlap around 11,951 (38.2% expansion) to 11,965 (23.6% retracement) amid the limited reaction to the better-than-expected U.S. Advance Retail Sales report; may see the greenback consolidate over the next 24-hours of trade as market participants wait for the fresh updates from Fed officials.
- Even though the Federal Open Market Committee (FOMC) is widely anticipated to retain its current policy, major adjustments to the growth and inflation forecast as well as the interest rate dot-plot may spur headwinds for the greenback should the central bank show a greater willingness to further delay the normalization cycle.
- Will continue to watch the downside targets as the USDOLLAR largely preserves the bearish trend from earlier this year, with the first hurdle coming in around 11,836 (61.8% retracement) to 11,843 (38.2% retracement) followed by 11,745 (50% retracement) to 11,759 (23.6% 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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