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GBP/USD Flashes Oversold Signal; FX Sentiment Holds Near 2016-Extreme

GBP/USD Flashes Oversold Signal; FX Sentiment Holds Near 2016-Extreme

2016-10-06 17:00:00
David Song, Strategist
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Talking Points:

- NZD/USD Downside Targets in Focus as Head-and-Shoulders Formation Unfolds.

- GBP/USD Flashes Oversold Signal; Retail Sentiment Holds Near 2016-Extreme.

DailyFX

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

NZD/USD

0.7162

0.7182

0.7136

11

46

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using Trading View

  • NZD/USD stands at risk of extending the recent series of lower highs & lows as it appears to have carved a head-and-shoulders formation during the summer months, with the Relative Strength Index (RSI) also reinforcing a bearish outlook for the exchange rate as the oscillator breaks down from the bullish trend from earlier this year; head-and-shoulders projection suggests a move below the 0.7000 handle.
  • Will continue to monitor market expectations amid speculation the Reserve Bank of New Zealand (RBNZ) will deliver another rate-cut at its last 2016 interest-rate decision on November 10, but more of the same from Governor Graeme Wheeler and Co. may prop up the kiwi going into the end of 2016 amid the low-yielding environment.
  • Closing price below 0.7170 (38.2% retracement) raises the risk for a move towards the next downside target around 0.7040 (50% retracement) to 0.7080 (50% retracement).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

GBP/USD

1.2659

1.276

1.2622

90

138

GBP/USD Daily

GBP/USD Daily Chart

Chart - Created Using Trading View

  • GBP/USD continues to search for support as a growing number of European Union (EU) officials argue the U.K. needs to trigger Article 50 of the Lisbon treaty before starting negotiations, and the sterling remains at risk of facing further losses over the days ahead as the Relative Strength Index (RSI) flirts with oversold territory; break below 30 in the oscillator would suggest the bearish momentum is gathering pace, and would need to see a move out of oversold territory to suggest a near-term recovery is taking shape.
  • Growing concerns surrounding ‘Brexit’ may put increased pressure on the Bank of England (BoE) to implement more non-standard measures as the disconnect from the EU’s single-market raises the risk for a recession; deviating paths for monetary policy may heighten the bearish sentiment surrounding GBP/USD especially as Fed officials appear to be making a more collective effort to prepare U.S. households and businesses for a December rate-hike.
  • Will keep a close eye on the downside targets as GBP/USD carves a near-term series of lower highs & lows, with a break/close below 1.2630 (38.2% expansion) opening up the next downside region of interest at 1.2460 (618% expansion), followed by 1.2360 (50% expansion).
DailyFX SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-long GBP/USD since September 13, with the ratio hitting the most extreme reading since 2003 as it climbed to +5.66 earlier this week.
  • GBP/USD SSI currently stands at 5.71 as 85% are long, with long positions 29.8% higher from the previous week, while open interest is 28.9% above the monthly average.
  • NZD/USD SSI currently sits -1.42 as 41% of traders are long, with short positions 7.1% lower from the previous week as the ratio narrows from an extreme reading of -3.41 in September.
  • With the retail crowd stuck on the wrong, the SSI may continue to act as a contrarian indicator for GBP/USD especially as the pair carves a near-term series of lower highs & lows.

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

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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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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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