British Pound Outlook:
- The British Pound is shedding momentum shortly as soon as once more as vitality issues are returning to the foreground.
- Whereas far faraway from its yearly low after the Financial institution of England’s intervention final week, the British Pound nonetheless stays in a technically weak place.
- Latest adjustments in retail dealer positioning recommend a combined bias for every of EUR/GBP, GBP/JPY, and GBP/USD charges.
Not Out of the Woods
Regardless of the Financial institution of England’s intervention efforts final week, the British Pound is beginning to weaken as soon as extra. To be clear, the BOE’s sudden QE announcement has relieved a substantial amount of strain that had constructed up after the Truss authorities’s mini-budget announcement; for now, a collapse of the UK pension system appears to be averted.
However the UK remains to be dealing with a really troublesome financial scenario. For the previous a number of months, we’ve highlighted the rising stagflation threat to the UK economic system, and in flip, the British Pound. A rising unemployment charge, multi-decade highs in inflation, and an economic system in contraction make for a nasty combine that leaves UK policymakers with few good choices.
GBP/USD RATE TECHNICAL ANALYSIS: DAILY CHART (June 2021 to October 2022) (CHART 1)
After setting contemporary yearly and all-time lows final week, GBP/USD charges staged a formidable rebound. However the rally seems to have misplaced steam, with the pair again under the 23.6% Fibonacci retracement from the 2021 excessive/2022 low vary. Likewise, momentum is beginning to rollover. GBP/USD charges are again under their every day 5-, 8-, 13-, and 21-EMAs, though the EMA envelope just isn’t but in bearish sequential order. Day by day MACD’s transfer greater under its sign line is fading, whereas every day Gradual Stochastics are on the cusp of falling out of oversold territory. As has been the case since mid-July, “a ‘promote the rally’ mindset stays applicable.”
IG Consumer Sentiment Index: GBP/USD RATE Forecast (October 6, 2022) (Chart 2)
GBP/USD: Retail dealer knowledge exhibits 52.71% of merchants are net-long with the ratio of merchants lengthy to brief at 1.11 to 1. The variety of merchants net-long is 7.13% greater than yesterday and 17.08% decrease from final week, whereas the variety of merchants net-short is unchanged than yesterday and 31.79% greater from final week.
We sometimes take a contrarian view to crowd sentiment, and the actual fact merchants are net-long suggests GBP/USD costs might proceed to fall.
Positioning is extra net-long than yesterday however much less net-long from final week. The mixture of present sentiment and up to date adjustments offers us an additional combined GBP/USD buying and selling bias.
GBP/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (October 2021 to October 2022) (CHART 3)
GBP/JPY charges have misplaced floor quickly within the latter half of the week, retracing the beneficial properties seen on Monday and Tuesday. Whereas momentum nonetheless has a bullish hue, it’s shortly fading. If a extra appreciable pullback is to transpire, it’s going to possible take a transfer again under the 50% Fibonacci retracement of the 2015 excessive/2020 low vary round 159.94, which served as help from June by means of late-September. A return to the yearly low under 149.00 – which was achieved and reversed in lower than two weeks – appears out of the query within the near-term.
IG Consumer Sentiment Index: GBP/JPY Fee Forecast (October 6, 2022) (Chart 4)
GBP/JPY: Retail dealer knowledge exhibits 30.47% of merchants are net-long with the ratio of merchants brief to lengthy at 2.28 to 1. The variety of merchants net-long is 33.96% greater than yesterday and 21.55% decrease from final week, whereas the variety of merchants net-short is 0.92% decrease than yesterday and 42.11% greater from final week.
We sometimes take a contrarian view to crowd sentiment, and the actual fact merchants are net-short suggests GBP/JPY costs might proceed to rise.
Positioning is much less net-short than yesterday however extra net-short from final week. The mixture of present sentiment and up to date adjustments offers us an additional combined GBP/JPY buying and selling bias.
EUR/GBP RATE TECHNICAL ANALYSIS: DAILY CHART (October 2021 to October 2022) (CHART 5)
EUR/GBP charges are beginning to grind greater as soon as extra, trying to clear the descending trendline from the 2008 and 2016 highs. Like different GBP-crosses, the pair doesn’t have a constant tone amongst its momentum indicators given the sharp reversal seen following the BOE’s QE announcement final week. That stated, the seeds are planted for an additional swing greater within the near-term. Resistance lies above at 0.8851 (the 50% Fibonacci retracement of the 2020 excessive/2022 low vary) and close to 0.9004 (the descending trendline from the 2008 and 2017 highs in addition to the 61.8% Fibonacci retracement of the 2020 excessive/2022 low vary).
IG Consumer Sentiment Index: EUR/GBP Fee Forecast (October 6, 2022) (Chart 6)
EUR/GBP: Retail dealer knowledge exhibits 52.45% of merchants are net-long with the ratio of merchants lengthy to brief at 1.10 to 1. The variety of merchants net-long is 1.59% decrease than yesterday and 39.64% greater from final week, whereas the variety of merchants net-short is 4.07% greater than yesterday and 14.85% decrease from final week.
We sometimes take a contrarian view to crowd sentiment, and the actual fact merchants are net-long suggests EUR/GBP costs might proceed to fall.
Positioning is much less net-long than yesterday however extra net-long from final week. The mixture of present sentiment and up to date adjustments offers us an additional combined EUR/GBP buying and selling bias.
— Written by Christopher Vecchio, CFA, Senior Strategist
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