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British Pound Talking Points

GBP/USD trades on a firmer footing amid growing hopes for a Brexit deal, but another failed attempt to test the August-high (1.3145) keeps the broader outlook tilted to the downside as the exchange rate continues to track the bearish formation from earlier this year.

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GBP/USD Rate Rebound to Benefit from Robust U.K. Job/Wage Growth

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The recent rebound in GBP/USD may gather pace over the next 24-hours of trade as the U.K. Employment report is anticipated to show the economy adding another 10K jobs in July, with Average Weekly Earnings excluding Bonus expected to increase to 2.8% from 2.7% the month prior.

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A batch of positive developments may heighten the appeal of the British Pound as it puts pressure on the Bank of England (BoE) to further embark on its hiking-cycle, and the central bank may increase its efforts to prepare U.K. households and businesses for higher borrowing-costs as ‘an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to the 2% target at a conventional horizon.’

However, a batch of lackluster data prints may do little to influence the monetary policy outlook as the Monetary Policy Committee (MPC) ‘continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal,’ and Governor Mark Carney & Co. may attempt to buy more time at the next meeting on September 13 as ‘any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.’

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Keep in mind the IG Client Sentiment Report continues to show a skew in retail sentiment as 61.3% of traders are net-long, with the ratio of traders long to short at 1.58 to 1.. The retail crowd has been net-long sinceApril 20 when GBP/USD traded near the 1.4050 regioneven though price has moved 7.5%lower since then.The number of traders net-long is 11.6% lower than yesterday and 17.6% lower from last week, while the number of traders net-short is 9.7% higher than yesterday and 3.9% lower from last week.

The persistent slant in retail positioning continues to offer a contrarian view to crowd sentiment, with the broader outlook for GBP/USD still tilted to the downside as the exchange rate preserves the bearish formation from earlier this year. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

GBP/USD Daily Chart

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  • Still watching the monthly opening range as GBP/USD appears to be making another attempt to test the August-high (1.3145), but the lack of momentum to close above the 1.3030 (38.2% expansion) to 1.3090 (38.2% retracement) region may keep the exchange rate within the downward trending channel from earlier this year.
  • Need a move below the 1.2890 (50% expansion) to 1.2950 (23.6% expansion) region to open up the Fibonacci overlap around 1.2750 (61.8% expansion) to 1.2800 (50% expansion), with the next downside region of interest coming in around 1.2630 (38.2% expansion) to 1.2640 (23.6% retracement), which sits just beneath the 2018-low (1.2662).

For more in-depth analysis, check out the Q3 Forecast for the British Pound

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— Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

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