Talking Points:
– GBP/USD Retail Shorts Jump, Open Interest Rises Going Into EU Summit.
– USDOLLAR to Pare Losses on Sticky CPI, Upbeat Fed Rheotric.
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GBP/USD
Chart – Created Using FXCM Marketscope 2.0
With market participants turning their attention to the EU Summit, the near-term bounce in GBP/USD may quickly fizzle should the U.K. fail to strike a deal; even though the Relative Strength Index (RSI) threatens the bearish formation from May, the triangle/wedge formation (continuation pattern) may lead to a further decline as the pair largely retains the downward trend carried over from the previous year.
Nevertheless, an agreement to keep the U.K. within EU may fuel a larger recovery in the exchange rate especially as Bank of England (BoE) Deputy Governor Jon Cunliffe highlights stretched market speculation and argues against the material shift in interest-rate expectations.
In light of bounce, would need to see GBP/USD climb/close back above 1.4510 (23.6% retracement) to 1.4520 (38.2% retracement) to favor a larger advance in the days ahead.
The DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long GBP/USD since November 19, with positioning hitting an extreme in January as the ratio climbed above +3.00.
Despite the recent pickup in the SSI, the ratio has come off of recent extremes as it narrows to +1.82, with current figures highlighting a 15.4% jump in short positions from the previous week.
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USDOLLAR(Ticker: USDollar):
Index
Last
High
Low
Daily Change (%)
Daily Range (% of ATR)
DJ-FXCM Dollar Index
12092.89
12108.99
12079.89
0.01
45.53%
Chart – Created Using FXCM Marketscope 2.0
The USDOLLAR stands at risk for a further decline as the RSI preserves the bearish formation from earlier this year, while Fed officials appear to be adopt a more cautious outlook as St. Louis Fed President James Bullard warns that it will be ‘unwise to continue a normalization strategy in an environment of declining market-based inflation expectations.’
The U.S. Consumer Price Index (CPI) may prop up the greenback as the report is anticipated to show sticky price growth, but dovish comments from Cleveland Fed President Loretta Mester, a 2016 voting-member, may dampen the appeal of the dollar as market participants push out bets for the next rate-hike.
Will keep a close eye on the monthly rate as the USDOLLAR consolidates ahead of the last full-week of February, with the next downside region of interest coming in around 11,986 (61.8% retracement).
Read More:
EUR/USD – Breakout Hangs in the Balance
USD/JPY Technical Analysis: Best 2-Week Run For JPY Since 1998
Crude Oil Turn in the Pipeline?
USD/JPY – The Abenomics Test
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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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Source: Daily fx
