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British Pound Forecast: GBP/USD, GBP/JPY at Risk as Retail Traders Boost Long Bets

British Pound Forecast: GBP/USD, GBP/JPY at Risk as Retail Traders Boost Long Bets

Daniel Dubrovsky, Strategist

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

  • Ukraine tensions have seen retail traders boost British Pound long bets
  • GBP/USD and GBP/JPY may thus be vulnerable to further losses ahead
  • What are key technical levels to watch in the event Sterling falls more?

The fallout of Russia’s invasion in Ukraine has seen retail traders increase their upside exposure in the British Pound. This can be seen by looking at IG Client Sentiment (IGCS). Long bets have been on the rise in GBP/USD and GBP/JPY. At times, IGCS can function as a contrarian indicator. If this trend in positioning continues, then the British Pound could remain vulnerable ahead.

GBP/USD Sentiment Outlook - Bearish

The IGCS gauge shows that about 73% of retail traders are net-long GBP/USD. Upside exposure has increased by 6.15% and 13.21% compared to yesterday and last week respectively. Since most traders remain net-long, this hints prices may continue falling. This, and recent changes in positioning, is offering a stronger bearish contrarian trading bias.

British Pound Forecast: GBP/USD, GBP/JPY at Risk as Retail Traders Boost Long Bets

GBP/USD Daily Chart

On the daily chart, GBP/USD has left behind a Doji candlestick pattern. This is a sign of indecision. Further upside progress from here could hint at gains to come. Immediate resistance could end up being the former 1.3195 – 1.3161 support zone. Still, a bearish ‘Death Cross’ between the 20- and 50-day Simple Moving Averages (SMAs) does hint at a downside bias. Extending losses places the focus on the 150% Fibonacci extension level at 1.3057 before the 161.8% point kicks in at 1.3010.

British Pound Forecast: GBP/USD, GBP/JPY at Risk as Retail Traders Boost Long Bets

Chart Created in Trading View

GBP/JPY Sentiment Outlook - Bearish

The IGCS gauge shows that roughly 42% of retail traders are net-long GBP/JPY. Upside exposure has increased by 5.73% and 11.11% compared to yesterday and last week respectively. Since most traders are still net-short, this shows prices may continue rising. However, recent shifts in positioning are warning that the price trend may soon reverse lower instead.

British Pound Forecast: GBP/USD, GBP/JPY at Risk as Retail Traders Boost Long Bets

GBP/JPY Daily Chart

Despite recent weakness, GBP/JPY remains mostly in a consolidative state. The pair is sitting around similar levels from early 2021. In fact, GBP/JPY has been trading between key support (148.463 – 149.352) and resistance (158.219 – 157.429). Still, a bearish Death Cross has emerged between the 20- and 50-day SMAs. This could hint at a downward bias. Clearing the 61.8% Fibonacci retracement level at 152.189 exposes the midpoint at 153.341. Confirming a break under 150.988 opens the door to revisiting the support zone from March 2021.

British Pound Forecast: GBP/USD, GBP/JPY at Risk as Retail Traders Boost Long Bets

Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from March 8th 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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