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GBP/USD Snaps Back Amid Growing Rift at BoE; Bearish Sequence Intact

GBP/USD Snaps Back Amid Growing Rift at BoE; Bearish Sequence Intact

2017-06-21 18:40:00
David Song, Currency Strategist
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Talking Points:

-GBP/USD Snaps Back Amid Growing Rift at BoE; Bearish Sequence Remains Intact.

- AUD/USD Fails to Benefit From RBA Minutes; RSI Pulls Back Ahead of Overbought Territory.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

GBP/USD

1.2664

1.2710

1.2589

35

121

The British Pound snapped back from a fresh monthly low of 1.2589 as Bank of England (BoE) Chief Economist Andrew Haldane argued the central bank should normalize monetary policy ‘well ahead of current market expectations,’ but the near-term outlook for GBP/USD remains tilted to the downside as it extends the bearish sequence from earlier this week.

The growing rift within the BoE may tame the recent weakness in the pound-dollar exchange rate as Mr. Haldane argues it ‘would be prudent’ to remove the record-low interest rate in the second-half of 2017, and it seems as though there will be a greater dissent at the next policy meeting on August 3 especially as Governor Mark Carney remains in no rush to move away from the highly accommodative policy stance. With that said, the growing uncertainties surrounding monetary and fiscal policy may continue to sap the appeal of Sterling, with GBP/USD at risk of giving back the relief rally from earlier this year as the Federal Open Market Committee (FOMC) appears to be on course to gradually reduce the balance sheet over the coming months.

GBP/USD Daily

GBP/USD Daily Chart

Chart - Created Using Trading View

  • Failure to test the 200-Day SMA (1.2570) may keep GBP/USD afloat, with the Relative Strength Index (RSI) highlighting the risk for a near-term consolidation as the oscillator appears to be turning around ahead of oversold territory; broader outlook remains tilted to the downside as the momentum indicator preserves the bearish formation carried over from the previous month.
  • Nevertheless, recent price action keeps the downside targets on the radar as the pound-dollar exchange rate preserves the series of lower highs & lows from earlier this week, with a break below the 200-Day SMA opening up the next region of interest around 1.2460 (61.8% expansion) to 1.2490 (38.2% retracement).

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Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

AUD/USD

0.7551

0.7586

0.7543

29

43

The Australia dollar failed to benefit from the Reserve Bank of Australia (RBA) Minutes as the central bank continue to highlight a cautious outlook for the real economy, and AUD/USD stands at risk of giving back the advance from earlier this month as Governor Philip Lowe and Co. appear to be on course to preserve the record-low cash rate throughout 2017.

Even though the RBA notes that ‘the transition to lower levels of mining investment following the mining investment boom was almost complete,’ officials warned ‘low growth in incomes, along with high levels of household debt, appeared to have been restraining growth in household consumption,’ and the central bank may have little choice but to support the economy for the foreseeable future as the region faces a growing threat of losing its AAA credit-rating.

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using Trading View

  • AUD/USD appears to have made a failed run at the 2017-high (0.7749) as the pair starts to carve a bearish sequence, with the Relative Strength Index (RSI) exhibiting a similar behavior as the oscillator pulls back ahead of overbought territory; may see the momentum indicator flash a bearish signal as it falls back towards trendline support.
  • Downside targets are back in focus as AUD/USD struggles to hold above the Fibonacci overlap around 0.7580 (38.2% retracement) to 0.7600 (23.6% retracement), with the recent series of lower highs & lows in the exchange rate raising the risk for a move towards 0.7500 (50% retracement) to 0.7530 (38.2% expansion), which sits just above the 50-Day SMA (0.7487).

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IG Sentiment
  • Retail trader data shows 49.8% of traders are net-long GBP/USD with the ratio of traders short to long at 1.01 to 1. The number of traders net-long is 11.3% lower than yesterday and 7.1% higher from last week, while the number of traders net-short is unchanged than yesterday and 9.9% lower from last week.
  • Retail trader data shows 15.6% of traders are net-long NZD/USD with the ratio of traders short to long at 5.39 to 1. In fact, traders have remained net-short since May 24 when NZD/USD traded near 0.69347; price has moved 4.1% higher since then. The number of traders net-long is 1.8% higher than yesterday and 6.5% lower from last week, while the number of traders net-short is 1.5% higher than yesterday and 41.6% higher from last week.

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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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