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GBP: Heightened Risk Doesn't Reward Position-Taking This Week

GBP: Heightened Risk Doesn't Reward Position-Taking This Week

Nick Cawley, Strategist
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Fundamental Forecast for GBP: Neutral

Sterling (GBP) Talking Points:

  • Sterling rally stalls ahead of crucial meeting.
  • Remember the outcome of the Salzburg meeting.

The DailyFX Q4GBP Forecast is available to download.

Next week’s EU Summit meeting in Brussels (October 17-18) has been pinpointed by many as a pivotal point in Brexit negotiations. Sterling has ground higher over the last few weeks on expectations that a break in the current impasse will be announced and that both sides can then fully focus on future trade agreements. I have been bullish Sterling over the past 4-6 weeks, suggesting dip buying, but now recognize that the risk-reward over the next week is not in favor of anyone holding a Sterling position, either long or short, and turn neutral on the British Pound.

If a mutually agreeable outcome from the meeting is announced – and it will still have to get through the Parliament – then a much clearer picture for Sterling in the short-, medium- and long-term will appear and traders should feel more confident with the trend. On the flip-side, expectations were high going into the recent Salzburg meeting, only for the EU to re-assert themselves and send PM Theresa May home empty-handed, pushing Sterling lower.

Ahead of this meeting the newswires will be likely filled with rumor and counter-rumor, leaving Sterling very much beholden to sentiment swings. If an agreement is neared or announced, the trend for Sterling will be set. It is better to miss some of a trend before getting onboard and benefitting from it, than it is to take a binary decision ahead of such an important meeting.

It is a hackneyed old phrase but ‘the trend is your friend’ should be listened to and followed.

On Mondays we take an in-depth look at important UK data releases, Brexit and other UK asset market drivers at 10:30GMT in our UK Key Events and Markets Webinar.

IG Client Sentimentdata show that retail investorsare 57.3% net-long GBPUSD, normally a bearish contrarian indicator. However, recent daily and weekly shifts in sentiment suggest GBPUSD may trend higher.

Sterling is currently giving back some of its recent gains ahead of the weekend and will likely remain below 1.3250 until the future is made clearer.

GBPUSD Daily Price Chart – October 12, 2018

GBP: Heightened Risk Doesn't Reward Position-Taking This Week

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

Other Weekly Fundamental Forecast:

New Zealand Dollar Forecast - New Zealand Dollar May Look Past CPI, Focus on Stocks, USD & Fed

Japanese Yen Forecast – Speculation for Above-Neutral Fed Rate to Curb USD/JPY Weakness

Oil Forecast – Oil Demand Forecasts Cut After Risk Rout Leads to Worst Week Since May

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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