GBP/USD Risks Further Losses as Bearish Outside-Day Takes Shape

Talking Points:

- GBP/USD Carves Outside-Day; U.K. 4Q Gross Domestic Product (GDP) on Radar.

- EUR/USD Searches for Support Following as ECB Removes Floor on Interest Rates.

- USDOLLAR Clears Near-Term Hurdle- Eyes Monthly High (12,081).

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GBP/USD

Chart - Created Using FXCM Marketscope 2.0

• GBP/USD fails to retain the bullish reaction to the 1.7% rise in U.K. Retail Sales, with the pair carving an outside day; close below 1.5400 (38.2% retracement) to 1.5420 (78.6% expansion) may spur a further decline especially as the Relative Strength Index (RSI) largely preserves the bullish formation from back in May.
• With the U.K. Gross Domestic Product (GDP) report expected to show the growth rate expanding another 2.4% in the third-quarter, a dismal development may produce near-term headwinds for the sterling as it provides the Bank of England (BoE) with greater scope to further delay the normalization cycle.
• DailyFX Speculative Sentiment Index (SSI)shows retail crowd remains net-long GBP/USD since August 21, but the ratio appears to be working its way back towards recent extremes as it advances to +1.77, with 64% of traders long.

EUR/USD

• EUR/USD remains at a risk for a further decline as the European Central Bank (ECB) shows a greater willingness to further extend/expand its quantitative easing (QE) program while opening the door for a further decline in the deposit-rate.
• As the ECB removes the floor on interest rates, the euro-dollar may continue to give back the rebound from back in late-July especially as the RSI fails to retain the bullish formation from earlier this year.
• A break of the September low (1.1086) may expose the next key downside figure around 1.1000 handle (78.6% retracement).

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USDOLLAR(Ticker: USDollar):

Index	Last	High	Low	Daily Change (%)	Daily Range (% of ATR)
DJ-FXCM Dollar Index	12006.49	12010.95	11934.82	0.46	161.49%

Chart - Created Using FXCM Marketscope 2.0

• Dow Jones-FXCM U.S. Dollar looks poised for a larger rebound as it clears the Fibonacci overlap around11,951 (38.2% expansion) to 11,965 (23.6% retracement); will watch for a break of the bearish RSI formation from June to favor a resumption of the long-term upward trend.
• Despite the limited market reaction to the U.S. data prints, the 4.7% expansion in Existing Home Sales may keep the Federal Reserve on course to raise the benchmark interest rate later this year as the central bank looks for a stronger recovery in the second-half of 2015.
• The near-term advance brings the key near-term resistance zones back into play around 12,049 (78.6% retracement) to 12,082 (61.8% expansion).

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--- Written by David Song, Currency Analyst