GBP/USD Retail FX Remains Net-Long Despite Dovish BoE

Talking Points:

- GBP/USD Struggles as BoE Votes 8-1; Retail Positioning Narrows From Recent Extremes.

- USD/JPY Preserves Bearish RSI Formation Following Wait-and-See BoJ, Widening Trade Surplus.

- USDOLLAR Continues to Carve Bearish Pattern Ahead of FOMC Rhetoric.

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GBP/USD

Chart - Created Using FXCM Marketscope 2.0

• GBP/USD pulls back from a fresh weekly high of 1.5371 amid the ongoing 8-1 split to preserve the current policy; failure to retain the recent series of higher highs & lows may foreshadow a further decline in the exchange rate especially as the Relative Strength Index (RSI) preserves the bearish formation from back in April.
• Even though the BoE remains on course to normalize monetary policy, the British Pound remains at risk of facing additional headwinds as the central bank sounds more dovish this time around and sees inflation holding below 1% until Spring 2016.
• DailyFX Speculative Sentiment Index (SSI)shows retail crowd remains net-long GBP/USD since August 21, but the ratio has come off of recent extremes as it narrows to +2.44, with 71% of traders now long.

USD/JPY

• Even though USD/JPY remains stuck in the range-bound price action carried over from the previous month, the pair remains at risk for a further decline as long as the RSI retains the bearish momentum from June.
• Even though the Bank of Japan (BoJ) stands ready to adjust policy, seems as though the central bank will continue to endorse a wait-and-see approach at the October 30 interest rate decision as Governor Haruhiko Kuroda remains upbeat on the economy, while the widening trade surplus highlights an improved outlook for growth.
• With prices largely capped around 120.70 (50% retracement), a break and close below 119.60 (38.2% retracement) may open up the next key downside region of interest around 118.20 (23.6% retracement) to 118.30 (78.6% expansion).

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USDOLLAR(Ticker: USDollar):

Chart - Created Using FXCM Marketscope 2.0

• Recent series of lower highs & lows in the Dow Jones-FXCM U.S. Dollar keeps the downside targets in focus; will retain a constructive long-term view for the greenback as long as it holds above the September low (11,865).
• Will keep a close eye on the slew of central bank rhetoric on tap for later today as the Federal Open Market Committee (FOMC) releases the meeting minutes; more of the same from Janet Yellen and Co. may dampen the appeal for the greenback amid the ongoing mixed batch of data coming out of the world’s largest economy.
• Break/close below the Fibonacci overlap around 11,951 (38.2% expansion) to 11,965 (23.6% retracement) should open up the next downside region of interest around 11,898 (50% retracement) to 11,901 (78.6% expansion).

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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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