GBP/USD Defines Near-Term Range Ahead of U.K. Retail Sales Report

2016-11-16 16:20:00

David Song, Strategist

Talking Points:

- GBP/USD Defines Near-Term Range Ahead of U.K. Retail Sales; 1.2360 Support in Focus.

- AUD/USD to Eye September Low (0.7441) on Subpar Australia Employment Report.

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
GBP/USD	1.2439	1.2503	1.241	18	93

GBP/USD Daily

Chart - Created Using Trading View

The mixed reaction to the U.K. Jobless Claims report may keep GBP/USD in a narrow range as the pair remains capped by the Fibonacci overlap around 1.2630 (38.2% expansion) to 1.2680 (50% retracement), while near-term support comes in around 1.2360 (50% expansion); may see the British Pound extend the relief rally carried over from the previous month as long as the upward trending channel remains in play.
A 0.4% rebound in U.K. Retail Sales may increase the Bank of England’s (BoE) scope to gradually move away from its easing-cycle as private-sector consumption remains one of the leading drivers of growth, and Governor Mark Carney may largely endorse a wait-and-see approach in 2017 as the central bank head warns ‘monetary policy can respond, in either direction.’
Break/close below 1.2360 (50% expansion) shifts the focus to the next downside target around 1.2270 (23.6% retracement) followed by 1.2100 (61.8% expansion).

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
AUD/USD	0.7473	0.7571	0.746	86	111

AUD/USD Daily

Chart - Created Using Trading View

Despite the limited market reaction to Australia’s Wage Price Index (WPI), AUD/USD stands at risk of extending the decline from earlier this month as it breaks down from the upward trend from earlier this year, with the Relative Strength Index (RSI) following suit; the recent developments highlight a potential shift in market behavior following the failed attempt to test the 2016 high (0.7834) accompanied by the break of the October low (0.7506).
With Australia Employment projected to pick up for the first time in three-months, a 15.0K expansion may spark a rebound in the exchange rate, but another dismal labor report may spur a test of the of the September low (0.7441) as it dampens the outlook for growth and inflation; even though the Reserve Bank of Australia (RBA) endorses a wait-and-see approach going into 2017, may see Governor Philip Lowe and Co. change their tune should the key data prints coming out of the real economy continue to disappoint.
The broader outlook for AUD/USD is coming increasingly bearish, with a break/close below 0.7450 (38.2% retracement) opening up the next downside target around 0.7390 (38.2% retracement) followed by the Fibonacci overlap around 0.7330 (50% retracement) to 0.7340 (61.8% retracement).

The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-long since even after the British Pound ‘flash crash,’ with retail sentiment hitting a 2016-extreme of +5.97 during the previous month, while traders have been net-long AUD/USD since November 9.
GBP/USD SSI sits at +1.68 as 63% of traders are long, with short positions 29.4% higher from the previous week even as open interest stands 12.1% below the monthly average.
AUD/USD SSI sits at +1.96 as 66% of traders are long, with long positions 77% higher from the previous week, while open interest stands 1.5% above the monthly average.
Have yet to see a full-return of market participation as open interest across the major currencies remain on the lighter side.

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