GBP/USD Fundamental Forecast: Neutral
- EU-UK trade talks coming down to the wire.
- Sterling exposed to volatile moves.
Sterling traders will need to buckle up next week as GBP-volatility is expected to return with a bang. Indeed volatility may start even before the Europe session opens on Monday, depending on the outcome of talks between EU Commission President Ursula von der Leyen and UK Prime Minister Boris Johnson on Saturday. A recognition that talks can proceed with increased intensity will see Sterling rally hard, while any talk that negotiations are gridlocked will see the British Pound sold off in short order. Other EU leaders may also opine on negotiations so traders should be wary of potential ‘tape bombs’ all weekend.
We noted in the Q4 GBP forecast that EU-UK trade negotiations were just one of three Sterling drivers for the next three months. The ongoing spread of COVID-19 continues to hit the UK economy with several local lockdowns recently imposed, although the figures for hospitalization, the use of ventilators, and fatalities are still markedly lower than the unfortunate peaks hit between early-April and early-May. The spread of the pandemic and the government’s reaction will be another real-time driver of Sterling.
Next week’s UK economic data and events calendar are light with only the monthly GDP figure at the end of the week of any real note. For all market-moving economic data releases and events see the DailyFX Calendar.
GBP/USD has crept higher all week, mainly on better EU/UK trade sentiment, and eyes the three-week high around 1.3010. Any positive trade mood music should see this level taken out, and with it, the 50-dma, leaving little in the way of a further push higher.
GBP/USD Daily Price Chart (March – October 2, 2020)
| Change in | Longs | Shorts | OI |
| Daily | 9% | -2% | 6% |
| Weekly | 1% | -13% | -3% |
Retail trader data shows 45.49% of traders are net-short with the ratio of traders short to long at 1.20 to 1.The number of traders net-long is 16.35% lower than yesterday and 19.99% lower from last week, while the number of traders net-short is 0.53% lower than yesterday and 3.60% higher from last week.We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise.
Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bullish contrarian trading bias.
Traders of all levels and abilities will find something to help them make more informed decisions in the new and improved DailyFX Trading Education Centre
What is your view on Sterling – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.
