British Pound Forecast to Fall Further

GBPUSD – Trading crowds bought aggressively into the British Pound against the US Dollar (ticker: USDOLLAR) as the GBPUSD crossed below the key $1.60 mark, and one-sided sentiment favors further weakness. Our retail trader sample currently shows 2.55 speculators long for every one short—over 70 percent of traders are long.

Such clear sentiment extremes suggest the British Pound could fall further before any meaningful bounce, and market focus now shifts to year-to-date lows at $1.5230. That said, we feel that the Euro/US Dollar might prove the more attractive option to play US Dollar strength. It has already broken yearly lows and forex seasonality shows it is exceedingly rare for currencies to make lows for the year in the month of May. That might imply that the year-to-date high in GBPUSD seen through April ($1.63) will not hold and the British Pound could see a substantial reversal through year-end.

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--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

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