BRITISH POUND TECHNICAL FORECAST: NEUTRAL
- British Pound up vs commodity currencies, down against USD and anti-risk FX
- Near-term technical positioning, retail trader sentiment studies offer mixed view
- Monthly chart setup suggests that the overall trend bias favors GBP weakness
The British Pound has put in a mixed performance since the beginning of the year, finding itself toward the middle of the pack of G10 currencies in a landscape polarized by stark risk-on vs. -off sentiment swings. It has edged modestly lower overall, which has been driven by losses against currencies with an anti-risk appeal (USD) and those where the parent central bank has little scope to cut interest rates (EUR, CHF, JPY). Sterling has gained on counterparts with more conventional monetary stimulus space than the BOE and a greater gearing toward the global business cycle (AUD, NZD, CAD).
British Pound chart created with TradingView
From a technical perspective, positioning looks inconclusive in the near term. An average tracking the Pound’s value against an average of its top counterparts has broken support guiding it higher since early August 2019. The subsequent decline has struggled to build lasting momentum however. In fact, positioning is now telegraphing the possibility that a bullish Triangle continuation pattern might set the stage for the next leg of the advance following a period of consolidation.
British Pound chart created with TradingView
Trader positioning studies are not much more conclusive. The IGCS sentiment indicator shows that 59.13% of retail investors are net-long the bellwether GBP/USD currency pair, with the long-to-short ratio at 1.45 to 1. This is typically a contrarian indicator, so broadly speaking, the net-long skew suggests prices are biased lower. However, the number of traders net-long is 11.96% lower while the number of traders net-short is 64.47% higher from last week. This hints that Sterling may indeed be gearing up to rally.
See the full IGCS sentiment report here.
On balance, all this makes for a clouded near-term outlook. With that in mind, zooming out to a longer-term view seems instructive. Turning to the monthly chart, the Pound appears well within the bounds of the dominant downtrend in play since January 2007. Most recently, a Bearish Engulfing candlestick pattern at range resistance followed by the break of trend line support set from August 2019 lows. Taken together, this suggest that the broad-based path of least resistance favors the downside.
British Pound chart created with TradingView
--- Written by Ilya Spivak, Sr. Currency Strategist for DailyFX.com
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter
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