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GBP/JPY, GBP/USD Rallies May Not be Finished - Positioning Shifts Around Latest Brexit Deal Progress

GBP/JPY, GBP/USD Rallies May Not be Finished - Positioning Shifts Around Latest Brexit Deal Progress

2019-10-24 03:30:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Brexit Latest News:

  • While UK PM Johnson is surely disappointed that he will not be able to execute his Brexit deal immediately, there is still scope for it to pass in due time.
  • Yet by the UK parliament shooting down the legislation to expedite the Brexit timeline, UK PM Johnson’s vision of getting his Brexit deal implemented has been dented.
  • Retail trader positioning suggests that the British Pound may still rally yet.

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

While UK PM Johnson is surely disappointed that he will not be able to execute his Brexit deal immediately, there is still scope for it to pass in due time. Given that the Letwin amendment passed on Saturday, it appears that there is still an appetite to get Brexit done – just on the right terms by the UK parliament. And with UK PM Johnson’s deal passed in principle, there is more evidence that Brexit may be a matter of the details.

Yet by the UK parliament shooting down the legislation to expedite the Brexit timeline, UK PM Johnson’s vision of getting his Brexit deal implemented has been dented. Let’s not forget that in a sign of begrudging compliance, UK PM Johnson refused to sign the letter requesting the extension past October 31.

EU officials are hesitant on granting another extension carte blanche, however; there are indications that leaders in Germany and France would want to see “actionable cause” for an extension, such as a second referendum or a general election. Indeed, French President Emmanuel Macron has previously said that another extension is “in no one’s interest.Accordingly, volatility in the GBP-crosses is up and sentiment/positioning has evolved meaningfully in recent days.

IG Client Sentiment Index: GBP/USD Rate Forecast (October 23, 2019) (Chart 1)

GBP/JPY, GBP/USD Rallies May Not be Finished - Positioning Shifts Around Latest Brexit Deal Progress

GBP/USD: Retail trader data shows 48.9% of traders are net-long with the ratio of traders short to long at 1.04 to 1. The number of traders net-long is 2.5% lower than yesterday and 4.3% lower from last week, while the number of traders net-short is 0.6% lower than yesterday and 15.8% 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. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bullish contrarian trading bias.

IG Client Sentiment Index: GBP/JPY Rate Forecast (October 23, 2019) (Chart 2)

GBP/JPY, GBP/USD Rallies May Not be Finished - Positioning Shifts Around Latest Brexit Deal Progress

GBP/JPY: Retail trader data shows 46.9% of traders are net-long with the ratio of traders short to long at 1.13 to 1. The number of traders net-long is 0.3% higher than yesterday and 4.4% lower from last week, while the number of traders net-short is 7.8% higher than yesterday and 39.9% higher from last week.

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

IG Client Sentiment Index: EUR/GBP Rate Forecast (October 23, 2019) (Chart 3)

GBP/JPY, GBP/USD Rallies May Not be Finished - Positioning Shifts Around Latest Brexit Deal Progress

EUR/GBP: Retail trader data shows 63.0% of traders are net-long with the ratio of traders long to short at 1.7 to 1. In fact, traders have remained net-long since Oct 14 when EUR/GBP traded near 0.86401; price has moved 0.3% lower since then. The number of traders net-long is 1.3% higher than yesterday and 21.5% higher from last week, while the number of traders net-short is 4.0% higher than yesterday and 3.7% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/GBP prices may continue to fall. 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 EUR/GBP 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

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