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British Pound Analysis: GBP/USD and GBP/JPY May Rise as Short Bets Increase

British Pound Analysis: GBP/USD and GBP/JPY May Rise as Short Bets Increase

Daniel Dubrovsky, Strategist

British Pound, GBP/USD, GBP/JPY, Technical Analysis, Retail Trader Positioning - Talking Points

  • Retail trader bets hint GBP/USD and GBP/JPY may climb ahead
  • Broader technical view shows shift away from aggressive uptrend
  • Check out last week’s webinar recording to learn more about IGCS

For most of April, retail investors have been unwinding short positioning in the British Pound, particularly against the US Dollar and Japanese Yen. This opened the door for Sterling to lose some ground. This can be demonstrated by taking a look at IG Client Sentiment (IGCS), a gauge of retail trader positioning.

IGCS is usually a contrarian indicator, meaning if short exposure is decreasing in an asset, prices could fall (and vice versa). Now, it seems like GBP/USD and GBP/JPY may be preparing to push higher. For more analysis on IGCS, check out last week’s webinar recording where I discussed how you can use this in a trading strategy.

GBP/USD Sentiment Outlook - Bullish

The IGCS gauge implies that about 38% of retail traders are net long GBP/USD. Downside exposure has increased by 7.02% and 57.43% over a daily and weekly basis respectively. The combination of current sentiment and recent changes offers a stronger bullish contrarian trading bias.

British Pound Analysis: GBP/USD and GBP/JPY May Rise as Short Bets Increase

Technical Analysis

GBP/USD bounced off the 100-day Simple Moving Average and extended gains. Prices are retesting rising support from March 2020 after a breakout lower in March. It could still hold here, sending the pair lower towards the 100-day SMA. Otherwise, pushing above the trendline exposes February highs.

GBP/USD Daily Chart

British Pound Analysis: GBP/USD and GBP/JPY May Rise as Short Bets Increase

Chart Created in Trading View

GBP/JPY Sentiment Outlook - Bullish

The IGCS gauge implies that about 48% of retail investors are net long GBP/JPY. Downside exposure has gained by 2.51% and 0.27% over a daily and weekly period, respectively. From here, the combination of current sentiment and recent changes offers a stronger bullish contrarian trading bias.

British Pound Analysis: GBP/USD and GBP/JPY May Rise as Short Bets Increase

Technical Analysis

GBP/JPY recently bounced off a combination of rising support from February and the 50-day SMA. These may reinstate the dominant focus to the upside, with key resistance at 152.24 before exposing the April 2018 high at 153.85. In the event of a turn lower, keep a close eye on the 148.53 – 149.38 support zone.

GBP/JPY Daily Chart

British Pound Analysis: GBP/USD and GBP/JPY May Rise as Short Bets Increase

Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from April 20th Report

--- Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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

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