Pound Sterling Analysis:
- GBP/USD recovering from Bank of England reality check
- Relevant Technical Levels for GBP/USD as the pair looks to regain lost ground
- IG Client Sentiment mixed, despite nearly 70% net-long (GBP/USD) positioning
Sterling Regains Ground after Stern BoE Reality Check
The rate decision of the November 4th Bank of England (BoE) policy meeting came as a shock to market participants when the monetary policy committee decided against a rate hike. This was despite there being not only one, but two rate hikes priced in via rates markets in the build-up to the meeting.
The sell-off brought about a sizeable 1.36% decline on the day against the US dollar with Friday taking the rate even lower. This week however, Sterling bounced back strongly as Monday’s positive trading day with price action continuing to trade up (at the time of writing).
While the pair looks to be approaching the upper side of the descending channel, GBP bulls are likely still licking their wounds after last weeks sell-off. A degree of caution therefore, may halt an extended bullish run, resulting in a period of sideways movement in the region of 1.3575 – 1.3675. However, expectations of a rate hike on the December 16th meeting are rising to around 50% so renewed expectations of a hike before year end could provide the necessary boost.
BoE Rate Expectations
Source: Refinitiv
Risks to the downside present themselves via the 1.3515 mark, then the lower bound of the descending channel which coincides with the 1.3410 mark.
GBP/USD Daily Chart
Chart prepared by Richard Snow, IG
The weekly chart helps view GBP/USD from a distance, highlighting the importance of the 1.3515 level as a key level of support. A breakdown of this level with continued momentum could be troublesome for GBP bulls as there is very little stopping a sharper move lower.
GBP/USD Weekly Chart
Chart prepared by Richard Snow, IG
IG Client Sentiment Provides Mixed Reading Despite Heavy Long Positioning
- GBP/USD: Retail trader data shows 67.76% of traders are net-long with the ratio of traders long to short at 2.10 to 1.
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall.
- The number of traders net-long is 14.06% lower than yesterday and 22.36% higher from last week, while the number of traders net-short is 15.54% higher than yesterday and 25.48% lower from last week.
- Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.
| Change in | Longs | Shorts | OI |
| Daily | 0% | -17% | -6% |
| Weekly | -1% | -4% | -2% |
--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
