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  • US Treasury Department: - U.S. ran record $1.9 trillion budget deficit in first 7 months of FY2021 - Federal outlays climbed 22% to $4.1 trillion from Oct. through April - Revenues rose 16%, reflecting 2020 tax deferrals
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  • IG Client Sentiment Update: Our data shows the vast majority of traders in Silver are long at 89.93%, while traders in GBP/USD are at opposite extremes with 69.03%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/HQJH0sy4AD
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Slowing U.K. GDP to Undermine GBP/USD Rebound

Slowing U.K. GDP to Undermine GBP/USD Rebound

David Song, Strategist

Talking Points:

- Slowing U.K. GDP to Undermine GBP/USD Rebound.

- Hesitant Federal Open Market Committee (FOMC) to Fuel EUR/USD Resilience.

- DailyFX 3Q Forecasts Are Now Available.

DailyFX Table

Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

GBP/USD

1.3032

1.3058

1.2984

38

74

GBP/USD appears to be making a run at the monthly high (1.3126) as it initiates a series of higher highs & lows, but the 2Q U.K. Gross Domestic Product (GDP) report may undermine the rebound in Cable as the growth rate is expected to slow to an annualized 1.7% from 2.0% during the first three-months of 2017.

Another below-forecast GDP print may encourage the Bank of England (BoE) to preserve the record-low interest rate throughout 2017 as it dampens the risk for above-target inflation, and the majority of central bank officials may continue vote in favor of the wait-and-see approach as the U.K.’s departure from the European Union (EU) clouds the economic outlook with high uncertainty. As a result, GBP/USD may consolidate over the near-term as the technical outlook remains cluttered with mixed signals.

GBP/USD Daily

GBP/USD Daily Chart

Chart - Created Using Trading View

  • After failing to close below the 1.2950 (23.6% retracement) hurdle, GBP/USD stands at risk of facing range-bound conditions as it remains capped by the Fibonacci overlap around 1.3090 (38.2% retracement) to 1.3120 (78.6% retracement); keep in mind the Relative Strength Index (RSI) continues to deviate with price as it preserves the bearish formation from May.
  • In turn, lack of momentum to test the monthly-high (1.3126) may open up the next downside region of interest around 1.2860 (61.8% retracement) followed by the overlap around 1.2630 (38.2% expansion) to 1.2680 (50% retracement), which sits just below the 100-Day SMA (1.2741).

Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

EUR/USD

1.1644

1.1684

1.1630

15

54

EUR/USD pulls back from a fresh 2017-high (1.1684) ahead of the Federal Open Market Committee’s (FOMC) July 26 interest rate decision, but the shift in market behavior may continue to unfold over the coming months should Fed Chair Janet Yellen and Co. show a greater willingness to further delay the normalization cycle.

The FOMC may merely try to buy more time ahead of its next quarterly meeting in September amid the mixed data prints coming out of the U.S. economy, and the committee may become more inclined to remove the quantitative easing (QE) program in 2018 especially as notable figures like J.P. Morgan CEO Jamie Dimon warn unloading the Fed’s balance sheet ‘could be a little more disruptive than people think.’ At the same time, below-target inflation accompanied by the ongoing weakness in household earnings may encourage Fed officials to highlight a more shallow path for the benchmark interest rate as Chair Yellen argues the ‘the federal funds rate would not have to rise all that much further to get to a neutral policy stance.’

In turn, more of the same from the FOMC may dampen the appeal of the greenback with Fed Fund Futures still highlighting a 50/50 chance for three rate-hikes in 2017.

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • Broader outlook for EUR/USD remains constructive as price & the Relative Strength Index (RSI) retain the bullish formations from earlier this year, but the pair stands at risk for a near-term pullback ahead of the FOMC meeting as it appears to have made a failed run at the August 2015-high (1.1714).
  • At the same time, a textbook RSI sell-signal may take shape as the oscillator pulls back from the highs and struggles to hold above 70.
  • Failed attempts to close above the 1.1670 (78.6% expansion) hurdle may spur a move back towards 1.1580 (100% expansion) with the next downside region of interest coming in around 1.1480 (78.6% expansion) followed by the 1.1400 (61.8% expansion) handle.
IG Sentiment

Track Retail Sentiment with the New Gauge Developed by DailyFX Based on Trader Positioning

  • Retail trader data shows 46.0% of traders are net-long GBP/USD with the ratio of traders short to long at 1.17 to 1. In fact, traders have remained net-short since June 23 when GBP/USD traded near 1.27385; price has moved 2.3% higher since then. The number of traders net-long is 1.5% lower than yesterday and 9.5% higher from last week, while the number of traders net-short is 1.4% higher than yesterday and 26.9% lower from last week.
  • Retail trader data shows 21.1% of traders are net-long EUR/USD with the ratio of traders short to long at 3.73 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.06785; price has moved 9.0% higher since then. The number of traders net-long is 9.2% lower than yesterday and 25.1% lower from last week, while the number of traders net-short is 1.6% higher than yesterday and 6.8% 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.

To be added to David's e-mail distribution list, please follow this link.

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

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