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GBP/USD Remains Under Pressure From the US Dollar and Article 16 Fears

GBP/USD Remains Under Pressure From the US Dollar and Article 16 Fears

Nick Cawley, Senior Strategist

GBP/USD Price, Chart, and Analysis

  • Little support seen for GBP/USD.
  • EU/UK discussions continue over NI protocol.
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The US dollar continues to dominate price action in the FX-space, leaving a range of currencies at the risk of making multi-month and multi-year lows, including GBP/USD. The latest US dollar rally, sparked by data showing US inflation at a 30-year high, has pushed cable back below 1.3400, leaving the pair at risk of further losses with little technical support seen.

While USD strength is the main driver of GBP/USD of late, ongoing tensions between the EU and UK may now be adding downside pressure on the British Pound. As it currently stands, the EU has made an improved offer to reduce customs checks in Northern Ireland and is calling for the UK to improve its position. The main stumbling block is the role of the European Court of Justice (ECJ) in policing the agreement. The EU says that the ECJ role is not up for negotiation, while the UK says the opposite. Talks continue and while they do, with the very real possibility of Article 16 being triggered, Sterling will remain weak.

Article 16: Why Triggering it Risks an All Out UK-EU Trade War

The daily chart highlights the current weakness in GBP/USD and suggests that support may be hard to find if the pair continues to fall. There is a cluster of prior lows and highs made at the end of 2020 on either side of 1.3300 that may act as initial support. If this level is broken conclusively, then the pair may eventually fall all the way back to 1.3100. Since late May the chart has been dominated by lower highs and lower lows and this pattern may be difficult to break in the short term.

GBP/USD Daily Price Chart November 12, 2021

Retail trader data show 77.28% of traders are net-long with the ratio of traders long to short at 3.40 to 1. The number of traders net-long is 8.66% higher than yesterday and 13.98% higher from last week, while the number of traders net-short is 5.79% higher than yesterday and 9.66% lower 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. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bearish contrarian trading bias.

What is your view on GBP/USD– 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.

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