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GBP/USD Risks Larger Recovery Ahead of BoE Meeting on Sticky UK CPI

GBP/USD Risks Larger Recovery Ahead of BoE Meeting on Sticky UK CPI

David Song,

Talking Points:

- GBP/USD Risks Larger Recovery Ahead of BoE Meeting on Sticky U.K. Inflation.

- USDOLLAR Struggles as Fed Governor Brainard Urges Continued ‘Prudence’.

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GBP/USD Daily Chart

Chart - Created by David Song

  • GBP/USD may stage a larger recovery ahead of the Bank of England (BoE) interest rate decision on September 15 as the headline as well as the core U.K. Consumer Price Index (CPI) is anticipated to pick up in August; may see market participants scale back their bearish outlook for the sterling as the Monetary Policy Committee (MPC) sees a risk of overshooting the 2% inflation-target over the policy horizon.
  • Even though the BoE keeps the door open to further embark on its easing cycle, Governor Mark Carney may continue to rule out a zero-interest rate policy (ZIRP) for the U.K. especially as the recent developments highlight a ‘soft-landing’ for the region following ‘Brexit.’
  • GBP/USD may face a larger recovery as the pair attempts to break out of the wedge/triangle formation carried over from July, with a move back above 1.3300 (100% expansion) to 1.3370 (78.6% expansion) opening up the next topside target around 1.3640 (38.2% retracement) followed by 1.3720 (61.8% expansion).
  • The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-short GBP/USD since the start of September, with the ratio hitting an extreme reading earlier this month as it slipped to -2.00 to mark the lowest clip since 2014.
  • The ratio currently sits at -1.21 as 45% of traders are long, with long positions 1.5% higher from the previous week, while open interest stands 3.5% above the monthly average.

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

USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
US Dollar Index11910.6111958.5211906.5-0.3495.66%
USDOLLAR Daily Chart

Chart - Created by David Song

  • The USDOLLAR struggles as Fed Governor Lael Brainard tames market expectations for a September rate-hike as the permanent voting-member urges continued ‘prudence’ in normalizing monetary policy and remains concerned about undershooting inflation; may see the greenback continue to consolidate within the wedge/triangle formation ahead of the interest-rate decision on September 21 amid the mixed comments from Fed officials.
  • Even though U.S. Advance Retail Sales are expected to contract in August, signs of sticky price growth accompanied by a rebound in the U. of Michigan Confidence survey may spur a greater dissent within the Federal Open Market Committee (FOMC) as a growing number of central bank officials prepare U.S. households and businesses for a 2016 rate-hike.
  • Despite the USDOLLAR holding within the previous day’s range, the failed test of the August low (11,841) may spur a move back towards the top of the near-term range, with a break/close back above 11,951 (38.2% retracement) to 11,965 (23.6% retracement) raising the scope for a test of the August high (12,027).
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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.