GBP Battered by Dovish BoE Governor Carney; S&P Fires Warning Shot


Talking Points:

Wait-and-See RBNZ to Thwart NZD/USD Resilience; RSI Continues to Pullback.

GBP/USD Battered by Dovish Carney; S&P Fires Warning Shot.

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The New Zealand dollar outperforms its major counterparts ahead of the Reserve Bank of New Zealand’s (RBNZ) June 21 interest rate decision, but the fresh rhetoric from Governor Graeme Wheeler and Co. may thwart the recent resilience in NZD/USD should the central bank show a greater willingness to preserve the record-low cash rate throughout 2017.

The RBNZ may continue to endorse a wait-and-see approach for monetary policy as ‘numerous uncertainties remain,’ and more of the same from the central bank may drag on NZD/USD especially as the Federal Open Market Committee (FOMC) shows a greater willingness to unload the balance sheet over the coming months.

NZD/USD Daily

NZD/USD Daily Chart

Chart – Created Using Trading View

  • The advance from the May-low (0.6818) may unravel as NZD/USD remains capped by the Fibonacci overlap around 0.7330 (38.2% retracement) to 0.7350 (23.6% expansion), and pair may largely extend the bearish trend carried over from 2016 as the Relative Strength Index (RSI) pulls back from overbought territory; may see the oscillator threaten the bullish formations from earlier this year as the near-term correction appears to be coming to an end.
  • May see the RSI flash a bearish signal as it approaches trendline support, with a break/close below the 0.7200 (38.2% retracement) handle opening up the first downside region of interest comes in around 0.7160 (61.8% retracement) followed by the 0.7100 (38.2% expansion) handle, which largely lines up with the 200-Day SMA (0.7099).

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GBP/USD is under pressure as Bank of England (BoE) Governor Mark Carney argues now is ‘not the time to begin’ normalizing monetary policy, and the British Pound stands at risk of facing additional headwinds over the coming months as Standard & Poor’s pledges to ‘review the U.K. like any other sovereign’ and will not wait for the conclusion of the Brexit negotiations to act on the regions credit-rating.

Despite the growing dissent within the Monetary Policy Committee (MPC), the recent comments from the central bank head suggests the majority is in no rush to lift the benchmark interest rate off of the record-low, and the BoE may merely attempt to buy more time at the next policy meeting on August 3 amid the growing uncertainties surrounding the U.K. economy. At the same time, heighten concerns of a credit-rating downgrade may continue to sap the appeal of Sterling as Prime Minister Theresa May struggles to form a coalition government, and the pound-dollar exchange rate may continue to drift lower over the near-term as it searches for support.

GBP/USD Daily

GBP/USD Daily Chart

Chart – Created Using Trading View

  • GBP/USD may continue to give back the relief rally from earlier this year as it fails to retain the upward trend from March, while the Relative Strength Index (RSI) extends the bearish formation carried over from the previous month; will keep a close eye on the oscillator as it approaches oversold territory, with a break below 30 raising the risk for a further decline in the exchange rate.
  • A close below the 1.2630 (38.2% expansion) hurdle may spur a test of the 200-Day SMA (1.2565), with the next downside region of interest around 1.2460 (61.8% expansion) to 1.2490 (38.2% retracement).

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IG Sentiment

  • Retail trader data shows 15.6% of traders are net-long NZD/USD with the ratio of traders short to long at 5.41 to 1. In fact, traders have remained net-short since May 24 when NZD/USD traded near 0.69347; price has moved 4.4% higher since then. The number of traders net-long is 22.6% lower than yesterday and 38.6% lower from last week, while the number of traders net-short is 13.1% higher than yesterday and 28.1% higher from last week.
  • Retail trader data shows 52.8% of traders are net-long GBP/USD with the ratio of traders long to short at 1.12 to 1. The number of traders net-long is 27.5% higher than yesterday and 6.7% lower from last week, while the number of traders net-short is 18.1% lower than yesterday and 3.2% lower from last week.

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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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