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British Pound Outlook: GBP/USD Supported by USD Weakness, UK Covid Data Warns

British Pound Outlook: GBP/USD Supported by USD Weakness, UK Covid Data Warns

Nick Cawley, Strategist

British Pound (GBP) Price Outlook

  • US dollar holds the key to the next GBP/USD move.
  • UK new covid cases continue to rise.
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The British Pound is trading either side of 1.3750 against the US dollar as traders prepare for the main event of the week - and potentially a lot longer - the Jackson Hole Symposium. While various central bankers and key individuals will start the meeting today with official speeches and on-the-side interviews, Friday’s speech by Fed chair Jerome Powell is key. Expectations that the Fed chair may announce a timetable for slowing down its bond-buying program have been lowered in recent days, as covid continues to spread at an alarming rate in the US, harming growth prospects. It may be that the Fed will decide to wait to see next Friday’s Jobs Report (NFP) before announcing any tapering timetable at the September FOMC meeting. This current indecision is weighing on the US dollar.

US Dollar Basket (DXY) Daily Price Chart (January – August 26, 2021)

In the UK the spread of covid also continues at an increasingly alarming rate, despite the government’s successful vaccination program. The percentage of the UK population aged 16+ who have had two vaccination doses is a fraction under 88%, while over 77% have had a single jab. While this vaccination program is an undoubted success, the delta variant is seeing a substantial rise in new cases with nearly 36k people testing positive on August 24, bring the rolling 7-day total up to just under 237k cases. There were 149 deaths within 28 days of a positive test on Tuesday, touching a multi-month high, while the 7-day total hit 743. While the UK is nearly fully re-opened, if these levels of infection and fatalities continue, there may be a change of plan in the coming weeks especially as September sees the start of a new school year.

GBP/USD’s reversal from the recent 1.3600 continues and is a mirror picture of the fall seen in the US dollar. There are no fundamental short-term GBPdrivers, apart from covid data, so the pair will likely range trade going into Friday. The technical set-up remains negative with the pair below all three simple moving averages, which may leave the July 20 multi-month low at 1.3572 vulnerable in the case of a sell-off.

GBP/USD Daily Price Chart (January - August 26, 2021)

Retail trader data show 62.11% of traders are net-long with the ratio of traders long to short at 1.64 to 1.The number of traders net-long is 4.89% lower than yesterday and 0.65% lower from last week, while the number of traders net-short is 3.92% lower than yesterday and 2.74% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall.Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current GBP/USD price trend may soon reverse higher despite the fact traders remain net-long.

GBP/USD Bullish
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -14% 22% -2%
Weekly -23% 99% 2%
What does it mean for price action?
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