British Pound, GBP/USD, GBP/JPY, EUR/GBP, Retail Trader Positioning - Talking Points
- Retail traders are betting that the British Pound may strengthen
- Contrarian signals hint that GBP/USD, GBP/JPY may weaken
- EUR/GBP may rise, are technicals aligning with positioning signals?
Taking a look at IG Client Sentiment (IGCS), retail traders have been increasingly betting on British Pound appreciation. Upside exposure has been rising in GBP/USD and GBP/JPY, with short exposure rising in EUR/GBP. At times, IGCS can be a contrarian indicator. If this trend in positioning continues, then Sterling could depreciate instead.
GBP/USD Sentiment Outlook - Bearish
The IGCS gauge implies that roughly 77.24% of retail traders are net-long GBP/USD. Downside exposure has decreased by 15.92% and 29.08% over a daily and weekly basis respectively. Since the majority of traders are net-long, this suggests prices may continue falling. Recent shifts in positioning are further underscoring a stronger bearish-contrarian trading bias.
GBP/USD finds itself testing a key zone of support. This is a combination of the 61.8% Fibonacci retracement of the September 2020 – June 2021 move at 1.3278 and the floor of a Descending Broadening Wedge. Positive RSI divergence does show that downside momentum is fading. As such, prices could bounce, placing the focus on the 20- and 50-period Simple Moving Averages. But, this may not spell the end of Sterling’s dominant downtrend since earlier this year.
GBP/USD Daily Chart
GBP/JPY Sentiment Outlook - Bearish
The IGCS gauge shows that about 54% of retail traders are net-long GBP/JPY. Downside exposure has decreased by 11.18% and 30.77% over a daily and weekly basis respectively. Since the majority of retail traders are net-long, this suggests prices may continue falling. Recent shifts in positioning are further underscoring a bearish-contrarian trading bias.
GBP/JPY could be vulnerable to a broader selloff after prices confirmed a breakout under a long-term rising trendline from 2020. This also follows a bearish crossover between the 20- and 50-period SMAs. Still, the key 148.463 – 149.352 support zone remains in play. This floor has held since March and could pivot prices higher once again. Confirming a breakout under the latter could hint at further losses. Otherwise, a push back above the SMAs may place the focus back on October highs.
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GBP/JPY Daily Chart
EUR/GBP Sentiment Outlook - Bullish
The IGCS gauge implies that roughly 59% of retail traders are net-long EUR/GBP. Upside exposure has decreased by 14.77% and 34.40% over a daily and weekly basis respectively. Since most traders are net-long, this hints prices may continue falling. However, recent shifts in positioning hint that the price trend may soon reverse higher.
EUR/GBP remains in a broader downtrend since last year, but downside momentum has been considerably slowing throughout 2021. Positive RSI divergence preceded the most recent leg higher. Prices remain below the long-term 200-day SMA, which is maintaining the downtrend. As such, the pair could pivot back lower in the event of a near-term climb. Resuming the downtrend entails a descent through 0.8373 towards lows from 2020. Immediate resistance seems to be at 0.8595.
EUR/GBP Daily Chart
*IG Client Sentiment Charts and Positioning Data Used from November 30th Report
--- Written by Daniel Dubrovsky, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
