GBPUSD Retracement Setup Aug 17, 2016

Daily Forex Reports | by Kate Curtis | Wednesday, 17 August 2016 04:02 UTC

Cable made a strong rally in yesterday's London session, creating a retracement opportunity from its recent slide. Applying the Fib tool on the latest swing high and low shows that the 38.2% to 50% levels span an area of interest from 1.3050 to 1.3100, which previously held as support.

In addition, the 50% Fibonacci retracement level coincides with the moving averages, which could add to its strength as resistance. The 100 SMA is below the 200 SMA, confirming that the path of least resistance is still to the downside. 

Stochastic is already in the overbought area, hinting that buyers may be getting exhausted, but the oscillator hasn't turned down from this area to indicate a return in selling pressure just yet. Also, the gap between the moving averages is narrowing so an upward crossover and longer-term rally may be possible.

UK CPI came in much better than expected, with the headline reading up from 0.5% to 0.6% instead of holding steady and the core CPI at 1.3% as expected. Underlying inflation data such as producer input prices, RPI and HPI all beat expectations, suggesting stronger price pressures in the coming months.

Meanwhile, talk of Fed rate hikes from a couple of US central bank officials boosted the dollar across the board during the US session but failed to stop Cable's rally. According to Dudley and Lockhart, the US economy is on track towards reaching 2% inflation and that at least one rate hike might be possible before the end of the year.

Event risks for today include the UK jobs release and FOMC minutes. The July claimant count could show an increase of 5.2K in joblessness while the unemployment rate could stay unchanged at 4.9%. The average earnings index is slated to improve from 2.3% to 2.5%. As for the FOMC minutes, any talk of possible tightening from other committee members could still yield gains for the dollar.

By Kate Curtis from Trader's Way

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