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GBP/USD Carves Inverse H&S Pattern Ahead of Key U.K. Data Prints
DailyFX.com -
Talking Points:
- GBP/USD to Mount Larger Recovery on Rising U.K. Inflation.
- USDOLLAR Outlook Remains Mired by Waning Fed-Rate Expectations.
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GBP/USD
Chart - Created Using FXCM Marketscope 2.0
The British Pound stands at risk of facing additional headwinds over the coming months as the Bank of England (BoE) looks to reestablish its easing cycle, but GBP/USD may stage a larger recovery over the days ahead as the headline as well as the core reading for the U.K. Consumer Price Index (CPI) is anticipated to pick up in June.
Even though BoE board member Gertjan Vlieghe pushes for a further reduction in the benchmark interest rate, there appears to be a rift within the Monetary Policy Committee (MPC) as Martin Weale argues the central bank should ‘wait for firmer evidence before making any policy change and least in the absence of any strong arguments for an immediate change.’
Will look for a larger recovery in GBP/USD as the Relative Strength Index (RSI) comes off of oversold territory, with a closing price above 1.3360 (50% expansion) to 1.3370 (78.6% expansion) opening up the next topside hurdle around 1.3640 (38.2% retracement) to 1.3720 (61.8% expansion).
The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd flipped back net-long GBP/USD on July15, with the ratio hitting an extreme reading following the U.K. Referendum as it climbed to +2.95.
The ratio currently sits at +1.25.
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USDOLLAR(Ticker: USDollar):
Index | Last | High | Low | Daily Change (%) | Daily Range (% of ATR) |
DJ-FXCM Dollar Index | 12025.69 | 12038.22 | 12019.64 | -0.05 | 26.73% |
Chart - Created Using FXCM Marketscope 2.0
The USDOLLAR may remain range-bound over the coming days as the economic docket stands fairly light for the week, while Fed Funds Futures show a zero percent probability for a rate-hike at the July 27 interest-rate decision.
The greenback stands at risk of facing additional headwinds over the coming months should the Federal Open Market Committee (FOMC) attempt to buy more time and further delay the normalization cycle; may see another unanimous vote to retain the current policy at the next interest-rate decision on July 27.
Looks as though the USDOLLAR needs a more meaningful fundamental catalyst to clear the near-term range as it remains capped by 12,049 (78.6% retracement) to 12,064 (61.8% retracement), with support coming in around 11,951 (38.2% expansion) to 11,965 (23.6% retracement).
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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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