Talking Points:
- 1.3100 a major potential support ahead of the BOE, US Retail Sales
- BOE rate decision and US Retail Sales are ahead for what could prove to be a volatile day for the pair
- Market focus might be on hints for further BOE easing
The GBP/USD is trading around the 1.32 handle in early European trading hours as the market awaits the major scheduled event risk on the docket.
The BOE rate decision and US Advance Retail Sales are in focus for the pair today for potential shifts in monetary policy bets.
Against this backdrop we will form our outlook and look to find short term trading opportunities using different tools such as the Grid Sight Index (GSI) indicator.
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The BOE Rate Decision is set to hit the wires 11:00 GMT.
The Bank of England is expected to keep policy at status que, and seems likely to remain on hold for now until economic indicators point to deterioration in the UK after the Brexit vote.
The commentary in the press release might weigh on the pound if the bank emphasizes the likely need to cut rates and ease policy further.
In this context, it will be interesting to see if and how the bank reacts to the (mostly) better than expected UK data since the Brexit vote.
If the MPC reiterates their cautious outlook for the economy, this may still weigh on the Pound. The votes by the MPC members may be interesting to watch as well for signs of diverging views within the committee.
US Advance Retail Sales is also on tap and one of the few significant economic indicators we have before the FOMC rate decision September 21. Sales are expected to have edged down by 0.1% versus the prior flat reading.
The market might need to see a huge beat to push forward Fed rate hike bets in order for September to really come back as a possibility for a hike, as probabiltiy stands at 15% at the moment (according to Fed fund futures).
Inflationary pressures seem to be the missing link for the Fed’s dual mandate, and a good report here could prove influential. With that said, US economic data has been underperforming for a while compared to expectations.
GBP/USD Technical Levels:
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We use volatility measures as a way to better fit our strategy to market conditions. The British Pound is seeing an uptick in 1-week and implied volatility measures as we head into next week’s decisions, but realized volatility is still subdued based on 20-day ATR readings.
In turn, this may imply that the more “macro” levels could hold until next week, but caution is warranted trading the shorter time frames for breakout type plays.
GBP/USD 30-Min Chart (With the GSI Indicator): September 15, 2016
(Click to Enlarge)
The GBP/USD is trading above potential support at 1.3200, with GSI calculating higher percentages of past movement to the upside in the short term.
The GSI indicator above calculates the distribution of past event outcomes given certain momentum patterns. By matching events in the past, GSI describes how often the price moved in a certain direction.
You can learn more about the GSI here, and download the Trade Station version here.
Other support levels to watch in the short term might be the area above 1.3150, 1.3120, 1.3050 and 1.3000.
Levels of resistance seem clean at 1.3250, 1.3300, 1.3350 and 1.3400.
We generally want to see GSI with the historical patterns significantly shifted in one direction, which alongside a pre-determined bias and other technical tools could provide a solid trading idea that offer a proper way to define risk.
We studied over 43 million real trades and found that traders who successfully define risk were three times more likely to turn a profit.
Read more on the “Traits of Successful Traders” research.
Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing that about 54.1% of FXCM’s traders are long the GBP/USD at the time of writing, offering a slight short bias on a contrarian basis.
You can find more info about the DailyFX SSI indicator here
--- Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com
To contact Oded Shimoni, e-mail oshimoni@dailyfx.com
Follow him on Twitter at @OdedShimoni
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