Talking Points:

- GBP/USD Bullish Behavior to Persist as BoE Endorses Hawkish Outlook for Monetary Policy.

- NZD/USD Continues to Carve H&S Formation; Bearish Sequence Vulnerable to Lackluster U.S. Retail Sales.

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DailyFX TableGBP/USD

GBP/USD climbs to fresh 2017-highs as the Bank of England (BoE) adopts a hawkish tone, and the pair may continue to exhibit a bullish behavior as the central bank appears to be on course to lift the benchmark interest rate off of the record-low.

Despite the 7 to 2 split, the majority of the Monetary Policy Committee (MPC) noted that ‘some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target,’ and Governor Mark Carney and Co. may increase their efforts to prepare U.K. households and businesses for higher borrowing-costs as officials warn ‘policy could need to be tightened by a somewhat greater extent over the forecast period than current market expectations.’ As a result, the British Pound may continue to recoup the losses following the Brexit vote as the BoE gradually alters the monetary policy outlook and shows a greater willingness to move away from its easing-cycle.

GBP/USD Daily Chart

GBP/USD Daily Chart

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  • Broader outlook for GBP/USD has perked up as the pair neutralizes the threat for a head-and-shoulders reversal and continues to take out the topside targets; break/close above the 1.3370 (78.6% expansion) hurdle opening up the next region of interest around 1.3460 (50% retracement), which sits just above the September 2016-high (1.3445).
  • The Relative Strength Index (RSI) clings to the bullish formation carried over from the previous month, but the lack of momentum to push into overbought territory may generate a near-term pullback in GBP/USD especially as the exchange rate comes up against the top of the ascending channel.
  • In turn, failure to hold above the 1.3300 (100% expansion) handle may spur a move back towards the Fibonacci overlap around 1.3090 (38.2% retracement) to 1.3120 (78.6% retracement), with the next downside hurdle coming in around 1.2950 (23.6% expansion).
NZD/USD

NZD/USD fails to preserve the range from earlier this week following a larger-than-expected uptick in the U.S. Consumer Price Index (CPI), and the pair remains at risk of giving back the advance from the 2017-low (0.6818) as it carves a key reversal pattern.

A head-and-shoulders formation is becoming more defined as NZD/USD struggles to push back above the Fibonacci overlap around 0.7330 (38.2% retracement) to 0.7350 (23.6% expansion), with the near-term outlook tilted to the downside as the pair initiates a series of lower highs & lows. However, the bullish U.S. dollar reaction to the CPI print may largely unravel as the Advance Retail Sales report is anticipated to show household spending increasing a marginal 0.1% in August following a 0.6% expansion the month prior. A marked slowdown in private-sector consumption, one of the leading drivers of growth and inflation, may dampen the appeal of the greenback as the Federal Open Market Committee (FOMC) is widely expected to retain the current policy at the September 20 interest rate decision.

NZD/USD Daily Chart

NZD/USD Daily Chart

Chart - Created Using Trading View

  • May see NZD/USD push back below neckline support around 0.7190 (50% retracement) to 0.7200 (38.2% retracement) as initiates a bearish sequence after failing break above the Fibonacci overlap around 0.7330 (38.2% retracement) to 0.7350 (23.6% expansion).
  • Near-term outlook for NZD/USD is becoming increasingly bearish as a head-and-shoulders formation unfolds, with the 200-Day SMA (0.7138) on the radar; next area of interest coming in around 0.7100 (38.2% retracement) to 0.7110 (38.2% expansion) followed by the 0.7040 (50% retracement) region.

Retail Sentiment

Retail Sentiment

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  • Retail trader data shows 30.1% of traders are net-long GBP/USD with the ratio of traders short to long at 2.32 to 1. In fact, traders have remained net-short since September 05 when GBP/USD traded near 1.30402; price has moved 2.5% higher since then. The number of traders net-long is 10.0% lower than yesterday and 25.3% lower from last week, while the number of traders net-short is 1.3% lower than yesterday and 24.1% higher from last week.
  • Retail trader data shows 49.9% of traders are net-long NZD/USD with the ratio of traders short to long at 1.0 to 1. The number of traders net-long is 18.8% lower than yesterday and 3.6% higher from last week, while the number of traders net-short is 3.4% lower than yesterday and 39.6% 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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