GBP/USD Risks Larger Rebound as Bearish RSI Momentum Falters

Talking Points:

- GBP/USD Looks Poised for Larger Rebound as RSI Breaks Out of Bearish Formation.

- USD/CAD Risks Bigger Pullback Amid Lack of Momentum to Close Above 1.1470-80.

- USDOLLAR to Pare Losses on Strong U.S. Advance Retail Sales Report.

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GBP/USD

Chart - Created Using FXCM Marketscope 2.0

• GBP/USD looks poised for a larger rebound as the Relative Strength Index (RSI) makes a more meaningful attempt to break out of the bearish momentum; need close above 1.5720-30 for conviction/confirmation.
• Underlying British Pound strength is likely to be seeing in the cross pairs as Bank of England (BoE) Governor Mark Carney continues to prepare U.K. households & businesses for higher borrowing-costs.
• Even though the retail crowd remains net-long GBP/USD, the DailyFX Speculative Sentiment Index (SSI) continues to come off of the recent highs, with the ratio currently standing at +1.11.

USD/CAD

• USD/CAD pushes to a fresh monthly high of 1.1501 as Bank of Canada (BoC) highlights downside risks for growth, but the pair may face a larger pullback ahead of the inflation print next week amid the lack of momentum to close above 1.1470 (38.2% expansion) to 1.1480 (78.6% expansion).
• Nevertheless, we will retain a longer-term approach to buy-dips in USD/CAD as long as BoC Governor Stephen Poloz remains reluctant to further normalize monetary policy.
• Will watch the 50-Day SMA (1.1290) in the event of a larger decline in USD/CAD as it lines up fairly well with channel support.

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USDOLLAR(Ticker: USDollar):

Chart - Created Using FXCM Marketscope 2.0

• Dow Jones-FXCM U.S. Dollar continues to tag the 10-Day SMA (11,405) as the RSI falls back from overbought territory; risks a larger correction should the oscillator fail to maintain the bullish formation.
• Nevertheless, weaker oil prices paired with a 0.4% rise in U.S. Advance Retail Sales may fuel interest rate expectations as Fed officials scale back their dovish tone for monetary policy and turn increasingly upbeat towards the economy.
• May need a close below 11,392 for a more meaningful run at former resistance zones around 11,312 (78.6% retracement) to 11,351 (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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