British Pound Outlook: Sterling Continues to Move Higher, Vaccination Program Hitting Target
British Pound (GBP) Price Outlook – Neutral to Bullish
- UK data marginally better-than-expected, vaccination program hitting targets.
- Sterling continues to strengthen against a range of currencies.
The first look at UK Q4 GDP showed growth beating expectations, albeit from a low base. Quarter-on-quarter growth came in at 1%, compared to expectations of 0.5% and a prior reading of 4.1%, although the UK’s 9.9% GDP contraction in 2020 was the worst performance in over 300 years. While the economy is likely to have escaped a double-dip recession, the data for the coming months will likely reverse lower, reflecting the effects of the third lockdown that began in January.
Next week, the economic calendar is light although January’s inflation rate and retail sales and February’s PMIs will be worth following and may nudge Sterling out of its current torpor.
The UK’s covid-19 vaccination plan continues at a great pace and is likely to hit the government’s target of 15 million first doses by February 15. The impressive pace of this program should allow UK PM Boris Johnson to release the country from lockdown sooner rather than later and get the economy moving. PM Johnson is said to be outlining his plans for unwinding lockdown restrictions in a speech to be broadcast on February 22.
We have talked about GBP/USD following the ‘two steps forward, one step back’ trading pattern and this continues to be the case. The weekly chart shows 13 out of the last 15 weekly candles as positive as the pair moves from just under 1.3000 to 1.3800 in a slow and steady fashion. Above, the recent 1.3866 high is the first target with little in the way of any further resistance all the way back up to 1.4377, the April 2018 high. The upward channel from March/April 2020 continues to dictate price action.
GBP/USD Weekly Price Chart (January 2017 – February 12, 2021)
Retail trader data show 33.48% of traders are net-long with the ratio of traders short to long at 1.99 to 1. The number of traders net-long is 2.80% lower than yesterday and 15.58% lower from last week, while the number of traders net-short is 6.64% lower than yesterday and 32.41% 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.Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.
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