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No Brexit Until October? Positioning Shifts Indicate GBP Could Rally

No Brexit Until October? Positioning Shifts Indicate GBP Could Rally

2019-04-15 18:05:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Talking Points:

- Implied volatility dropped across the entire GBP-complex last week thanks to the Brexit deadline being pushed to October.

- Changes in retail trader positioning suggest that the British Pound may rally soon.

- If the British Pound rallies, traders may want to look to GBPJPY or GBPUSD for long opportunities.

Looking for longer-term forecasts on the British Pound? Check out the DailyFX Trading Guides.

For the first time in several months, it feels like there isn’t a Brexit checkpoint looming around the corner. With the Brexit deadline officially pushed back until October 31, 2019, traders can now turn their gaze away from domestic UK politics – at least in the near-term.

Options markets have been quick to price in this new reality, with measures of implied volatility, across the GBP-crosses, plummeting across tenors through the end of the year. The fact of the matter is that markets are not only pricing-out the expectation of any Brexit news in the near-term – but they may be pricing-out the possibility of a Brexit altogether.

Traders may soon find new opportunities as Brexit fatigue sets in. That is, given recent changes in positioning, it appears that markets may be readying to relinquish their long-term bearish British Pound biases; in turn, long GBP setups may soon become appealing.

IG Client Sentiment Index: GBPUSD Price Forecast (April 15, 2019) (Chart 1)

No Brexit Until October? Positioning Shifts Indicate GBP Could Rally

GBPUSD: Retail trader data shows 64.2% of traders are net-long with the ratio of traders long to short at 1.79 to 1. In fact, traders have remained net-long since Mar 26 when GBPUSD traded near 1.3205; price has moved 0.8% lower since then. The number of traders net-long is 4.6% higher than yesterday and 17.2% lower from last week, while the number of traders net-short is 12.5% higher than yesterday and 14.1% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD 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 GBPUSD price trend may soon reverse higher despite the fact traders remain net-long.

IG Client Sentiment Index: GBPJPY Price Forecast (April 15, 2019) (Chart 2)

No Brexit Until October? Positioning Shifts Indicate GBP Could Rally

GBPJPY: Retail trader data shows 40.9% of traders are net-long with the ratio of traders short to long at 1.44 to 1. The percentage of traders net-long is now its lowest since Mar 18 when GBPJPY traded near 147.732. The number of traders net-long is 18.1% higher than yesterday and 6.6% lower from last week, while the number of traders net-short is 31.8% higher than yesterday and 16.0% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPJPY 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 GBPJPY-bullish contrarian trading bias.

IG Client Sentiment Index: EURGBP Price Forecast (April 15, 2019) (Chart 3)

No Brexit Until October? Positioning Shifts Indicate GBP Could Rally

EURGBP: Retail trader data shows 43.3% of traders are net-long with the ratio of traders short to long at 1.31 to 1. In fact, traders have remained net-short since Apr 05 when EURGBP traded near 0.85835; price has moved 0.5% higher since then. The number of traders net-long is 8.5% higher than yesterday and 4.5% lower from last week, while the number of traders net-short is 7.8% higher than yesterday and 18.2% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURGBP 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 EURGBP trading bias.

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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

View our long-term forecasts with the DailyFX Trading Guides

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