British Pound Likely to Fall, but Caution Advised
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GBPUSD– Retail FX traders continue to buy into British Pound weakness versus the US Dollar, and a contrarian view of ‘crowd’ sentiment warns that further GBP/USD losses are likely. From a risk-to-reward perspective, however, we see key reasons for why traders might wait to sell the British Pound. Namely: extremely stretched positioning warns of the potential for sharp near-term rallies.
Of course sentiment extremes are only clear in hindsight, and we may ourselves wait for a substantive turn in retail FX trader sentiment to call for a larger GBP bounce.
See next currency section: USDJPY - Forex Sentiment Turns on a Dime - Watch Key Yen Risk
--- Written by David Rodriguez, Senior Strategist for DailyFX.com
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