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GBP/USD Relief Rally Remains in Play Ahead of UK CPI, Jobless Claims

GBP/USD Relief Rally Remains in Play Ahead of UK CPI, Jobless Claims

2016-11-10 17:05:00
David Song, Strategist
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Talking Points:

- GBP/USD Relief Rally Remains in Play Ahead of U.K. CPI, Jobless Claims Report.

- Post-RBNZ NZD/USD Weakness Shifts Focus to Downside Targets as Governor Wheeler Retains Cautious Outlook.

DailyFX

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

GBP/USD

1.2516

1.2539

1.2378

110

161

GBP/USD Daily

GBP/USD Daily Chart

Chart - Created Using Trading View

  • Despite the whipsaw-like price action following the U.S. Presidential election, GBP/USD outperforms against its major counterparts and appears to be coiling for a move higher as it breaks out of the downward trend carried over from September, with former-resistance around 1.2360 (50% expansion) now acting as support; will also keep a close eye on the Relative Strength Index (RSI) as it continues to come off of oversold territory and looks poised to test the bearish formation carried over from May.
  • With Fed Funds Futures projecting a 76% probability for a December rate-hike, the broader outlook for GBP/USD remains tilted to the downside as the Federal Open Market Committee (FOMC) looks to further normalize monetary policy, but the Bank of England (BoE) may gradually move away from its easing-cycle in 2017 especially as the U.K. Consumer Price Index (CPI) is expected to show another uptick in the headline reading for inflation, while the Jobless Claims report is projected to highlight a further improvement in household earnings.
  • Will keep a close eye on the topside targets going into the end of the week, with the next region of interest coming in around 1.2630 (38.2% expansion) to 1.2680 (50% retracement) followed by 1.2860 (61.8% retracement).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

NZD/USD

0.7210

0.7307

0.7177

69

130

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using Trading View

  • Broader outlook for NZD/USD remains constructive even after the Reserve Bank of New Zealand (RBNZ) reduced the official cash rate to a fresh record-low of 1.75% as Governor Graeme Wheeler and Co. endorse a wait-and-see approach going into 2017, but the recent string of lower highs & lows may spur a move back towards the October low (0.7035) especially as the RSI fails to preserve the bullish formation carried over from the previous month; may see price show a similar dynamic to the RSI as the pair appears to have marked a failed run at the 2016-high (0.7485).
  • The resilience in the higher-yielding currency may continue to take shape over the remainder of the year as the RBNZ changes its tune and notes the ‘current projections and assumptions indicate that policy settings, including today’s easing, will see growth strong enough to have inflation settle near the middle of the target range,’ but it seems as though the central bank has yet to reach the end of its easing-cycle as officials warn ‘numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.
  • NZD/USD may face a larger pullback should it fail to preserve the upward trend from the October low (0.7035), with the next downside region of interest coming in around 0.7100 (38.2% expansion) followed by 0.7040 (50% retracement).
DailyFX SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long GBP/USD even after the British Pound ‘flash crash, with sentiment hitting a 2016-extreme of +5.97 in October, while traders remain net-short NZD/USD since October 28.
  • GBP/USD SSI sits at +1.73 as 63% of traders are long, with short positions 22.3% lower from the previous week as open interest stands 19.7% below the monthly average.
  • NZD/USD SSI sits at -1.28 as 44% of traders are long, with short positions 42.5% lower from the previous week, while open interest stands 22.8% below the monthly average.
  • May see the major currencies face whipsaw-like conditions going into the weekend as market participation remains thin.

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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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