GBP/USD Ratio: -1.58 Trading Forecast: Bullish
GBPUSD – Forex traders continue to sell the British Pound against the US dollar, and increasingly one-sided positioning implies that the GBP/USD may rally through near-term trade. Indeed, extremes in market sentiment very often coincide with the opposite movements in price. Today’s highly unexpected 150 basis point interest rate cut from the Bank of England has arguably dimmed fundamental outlook for the British Pound, but we nonetheless believe that current sentiment extremes may point to short-term GBP/USD strength. The ratio of long to short positions in the GBPUSD stands at -1.61 as nearly 62% of traders are short, and short positions have actually gained 9.6 percent overnight—signaling that the crowd has sold on the BoE news. Yet the SSI is a contrarian indicator and forecasts GBPUSD gains.
Written by David Rodríguez, Quantitative Analyst for DailyFX.com