Talking Points:
- GBP/USD Unfazed by 2Q GDP; Topside Hurdles in Focus Ahead of BoE ‘Super Thursday’ Event.
- USD/CAD Outlook Hinges on U.S. & Canada Gross Domestic Product (GDP) Reports.
- GBP/USD Retail Net-Shorts Rise 19% from Last Week.
| Ticker | Last | High | Low | Daily Change (pip) | Daily Range (pip) |
|---|---|---|---|---|---|
| GBP/USD | 1.3067 | 1.3159 | 1.3061 | 54 | 98 |
The British Pound outperforms most of its major counterparts as fresh surveys coming out of the Confederation of British Industry (CBI) highlight a pickup in household spending, and GBP/USD may continue to gain ground ahead of the Bank of England’s (BoE) ‘Super Thursday’ event amid the growing dissent within the central bank.
With GBP/USD largely unfazed by the lackluster 2Q Gross Domestic Product (GDP) report, the fresh updates from Governor Mark Carney and Co. may heavily influence the near-term outlook for the pound-dollar exchange rate as the central bank head persistently warns ‘inflation will be above target for a period of time.’ Even though the Monetary Policy Committee (MPC) is widely expected to keep the benchmark interest rate at the record-low, the BoE may gradually change its tune and endorse a less-dovish outlook as ‘the continued growth of employment could suggest that spare capacity is being eroded, lessening the trade-off that the MPC is required to balance and, all else equal, reducing the MPC’s tolerance of above-target inflation.’
GBP/USD Daily
Chart - Created Using Trading View
- GBP/USD stands at risk for a further advance as it clears the last week’s high (1.3126) and continues to carve a series of higher-highs; another close above the Fibonacci overlap around 1.3090 (38.2% retracement) to 1.3120 (78.6% retracement) may open up the next topside hurdle around 1.3300 (100% expansion) to 1.3370 (78.6% expansion) especially as the Relative Strength Index (RSI) threatens the bearish formation carried over from May.
- However, lack of momentum to break trendline resistance raises the risk for a near-term pullback in pound-dollar, with a move back below 1.2950 (23.6% retracement) opening up the 1.2860 (61.8% retracement) region followed by the overlap around 1.2630 (38.2% expansion) to 1.2680 (50% retracement).
| Ticker | Last | High | Low | Daily Change (pip) | Daily Range (pip) |
|---|---|---|---|---|---|
| USD/CAD | 1.2526 | 1.2546 | 1.2414 | 81 | 132 |
USD/CAD holds within the previous day’s range as market attention turns to the Gross Domestic Product (GDP) reports coming out of the U.S. and Canada, and the fresh developments may fuel the shift in dollar-loonie behavior should the data encourage the Bank of Canada (BoC) to further normalize monetary policy over the coming months.
A pickup in Canada GDP may push Governor Stephen Poloz and Co. to adopt a more hawkish tone as officials now note ‘the output gap is now projected to close around the end of 2017, earlier than the Bank anticipated in its April Monetary Policy Report (MPR).’ In turn, the Canadian dollar may continue to exhibit a bullish behavior ahead of the next meeting on September 6 as the BoC highlights that the ‘the factors behind soft inflation appear to be mostly temporary.’
In contrast, a marked slowdown in the core U.S. Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, may overshadow a pickup in the growth rate as the central bank struggles to achieve the 2% target for price growth. As a result, waning expectations for a December rate-hike may continue to dampen the appeal of the greenback as Chair Janet Yellen argues ‘the federal funds rate would not have to rise all that much further to get to a neutral policy stance.’
USD/CAD Daily
Chart - Created Using Trading View
- Broader outlook for USD/CAD remains tilted to the downside as it fails to retain the upward trend from 2016, but the pair may stage a near-term correction amid the lack of momentum to close below the Fibonacci overlap around 1.2420 (61.8% expansion) to 1.2440 (23.6% expansion).
- Keeping a close eye on the Relative Strength Index (RSI) as it threatens the bearish formation from May; may see a textbook RSI buy-signal emerge as the oscillator appears to be moving out of overbought territory.
- A close above the near-term hurdle around 1.2510 (78.6% retracement) to 1.2540 (78.6% expansion) opens up the next area of interest around 1.2620 (50% retracement) to 1.2640 (61.8% expansion) followed by 1.2710 (50% expansion) region.
Track Retail Sentiment with the New Gauge Developed by DailyFX Based on Trader Positioning
- Retail trader data shows 38.4% of traders are net-long GBP/USD with the ratio of traders short to long at 1.6 to 1. In fact, traders have remained net-short since June 23 when GBP/USD traded near 1.27385; price has moved 2.7% higher since then. The number of traders net-long is 13.0% lower than yesterday and 13.1% lower from last week, while the number of traders net-short is 7.7% higher than yesterday and 19.2% higher from last week.
- Retail trader data shows 74.4% of traders are net-long USD/CAD with the ratio of traders long to short at 2.91 to 1. In fact, traders have remained net-long since June 07 when USD/CAD traded near 1.34954; price has moved 7.4% lower since then. The number of traders net-long is 17.2% lower than yesterday and 9.8% higher from last week, while the number of traders net-short is 3.3% lower than yesterday and 1.3% lower 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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