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GBP/USD Eyes ‘Flash Crash’ Low Ahead of U.K. Budget Statement

GBP/USD Eyes ‘Flash Crash’ Low Ahead of U.K. Budget Statement

2016-11-18 16:00:00
David Song, Currency Strategist
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Talking Points:

- NZD/USD Weakness Reflects Shift in Market Behavior as 2016 Bull-Trend Cracks.

- GBP/USD Eyes “Flash Crash’ Low as Near-Term Range Buckles Ahead of U.K. Budget Statement.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

NZD/USD

0.7021

0.7061

0.7001

4

60

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using Trading View

  • NZD/USD may continue to carve lower highs & lows in the week ahead as it fails to preserve the bullish trend from earlier this year, and the key development may highlight a further shift in market behavior especially as the Relative Strength Index (RSI) largely responds to the downward trend carried over from the summer months; downside targets remain in focus as the pair clears the October low (0.7035).
  • The 0/9% expansion in New Zealand 3Q Retail Sales accompanied by the pickup in factor-gate prices may encourage the Reserve Bank of New Zealand (RBNZ) to keep the benchmark interest rate at the record-low of 1.75% at its first 2017 interest-rate decision on February 9, but Governor Graeme Wheeler may keep the door open to further embark on the easing-cycle as the central bank warns ‘numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.
  • Another closing price below 0.7040 (50% retracement) will keep the downside targets in focus, with the next region of interest coming in around 0.6950 (38.2% retracement) followed by the Fibonacci overlap around 0.6820 (23.6% retracement) to 0.6870 (50% retracement).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

GBP/USD

1.2312

1.2436

1.2307

105

129

GBP/USD Daily

GBP/USD Daily Chart

Chart - Created Using Trading View

  • GBP/USD may continue to give back the rebound from the British Pound ‘Flash Crash’ as it struggles to preserve the near-term range and threatens the upward trending channel carried over from the previous month; may see a bearish RSI trigger unfold in the week ahead should the oscillator fail to react to trendline support.
  • With market attention turning to the U.K Budget Statement due out on November 23, the fresh projections from Chancellor of the Exchequer Philip Hammond may largely track the Bank of England’s (BoE) expectation as the marked depreciation in the exchange rate is expected to fuel ‘inflation overshoot,’ and HM Treasury may be unable to deliver a material fiscal stimulus package amid the growing budget deficit.
  • May see the longer-term bearish trend reassert itself as the relief rebound appears to be getting exhausted, with a close below 1.2360 (50% expansion) opening up the next downside target around 1.2270 (23.6% retracement) followed by 1.2100 (61.8% expansion), with the ‘flash crash’ low (1.1905) on the radar.

DailyFX SSI
  • 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 NZD/USD since November 11.
  • GBP/USD SSI sits at +2.06 as 67% of traders are long, with long positions 13.5% higher from the previous week even as open interest stands 13.2% below the 30-day average.
  • NZD/USD SSI sits at +1.50 as 60% of traders are long, with long positions 32.0% higher from the previous week, while open interest stands 5.5% below the monthly average.
  • Will keep a close eye on market participation going into the holiday week, with the less-popular FX pairs at risk of facing whipsaw-like price action on the back of thin liquidity.

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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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