GBP/USD IG Client Sentiment: Traders Are Selling Reversion into Multi-Month Range
IG CLIENT SENTIMENT INDEX: GBP/USD RATE FORECAST (JULY 27, 2021) (CHART 1)
Number of traders net-short has increased by 67.26% from last week.
CHANGE IN LONGS
CHANGE IN SHORTS
CHANGE IN OI
GBP/USD: Retail trader data shows 48.21% of traders are net-long with the ratio of traders short to long at 1.07 to 1. In fact, traders have remained net-short since Jun 16 when GBP/USD traded near 1.40, price has moved 0.77% lower since then. The number of traders net-long is 12.24% lower than yesterday and 37.87% lower from last week, while the number of traders net-short is 6.60% higher than yesterday and 67.26% 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.
Our data shows traders are now net-short GBP/USD for the first time since Jun 16, 2021 when GBP/USD traded near 1.40. 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.
GBP/USD RATE TECHNICAL ANALYSIS: DAILY CHART (APRIL 2020 TO JULY 2021) (CHART 2)
Last week, GBP/USD rates dropped out of the broader sideways range in place since early-February, between 1.3660 and 1.4250. But the decline in rates was quickly reversed as support come into play around a cluster of Fibonacci levels.
The return to the multi-month range suggests a false bearish breakout may have transpired now that GBP/USD cleared the downtrend from the May and June swing highs.
If the decline last week constitutes a bear trap, then a full-scale reversal with the multi-month range may soon develop (which would ultimately target the broader range high near 1.4250).
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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