GBP/USD, GBP/JPY, EUR/GBP Eye Retail Trader Price Signals

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

The British Pound has pushed to its highest against the US Dollar since April 2018. Its strength is not exclusive against the Greenback either: progress has also been made against its major counterparts like the Japanese Yen and the Euro. With that in mind, might Sterling’s strength inspire more retail traders to chase the next top? What might that mean for Sterling’s trend going forward?

For that, IG Client Sentiment (IGCS) can help uncover this path. IGCS is typically a contrarian indicator, meaning that if most retail traders are short a given asset, the signal this tends to give is bullish (and vice versa). To learn more about this tool, check out my recording of my webinar from last week where I discussed how you can use the tool in a trading strategy.

GBP/USD Sentiment Outlook – Bullish

The IGCS gauge implies that roughly 33% of retail traders are net long GBP/USD. Downside exposure has climbed by 12.58% and 55.65% over a daily and weekly basis respectively. We typically take a contrarian view to crowd sentiment, and the fact that traders are net short suggests that prices may continue to rise. The combination of current sentiment and recent changes offer a stronger bullish contrarian trading bias.

GBP/USD Technical Analysis

From a technical standpoint, GBP/USD has extended beyond the midpoint of the Fibonacci extension at 1.3711. That has placed the 61.8% level at 1.3955 in focus. Maintaining the key uptrend since March has been a rising trendline. Negative RSI divergence does show upside momentum is fading, which can at times precede a turn lower. Such an outcome might place the focus on the trendline.

Daily Chart

GBP/USD Chart Created in Trading View

GBP/JPY Sentiment Outlook – Bearish

The IGCS gauge implies that about 32% of retail traders are net long GBP/JPY. Upside exposure has increased by 18.36% and 17.22% over a daily and weekly basis respectively. We typically take a contrarian view to crowd sentiment, and the fact that traders are netshort suggests that prices may continue to rise. However, recent changes in sentiment warn that the current trend may soon reverse lower.

GBP/JPY Technical Analysis

GBP/JPY has finally reached February 2020 having bottomed in March. This makes for a key zone of resistance between 144.36 and 144.95 – see chart below. As such, we could see a turn lower. In such an scenario, keep a close eye on rising support from December. Below that is the 50-day Simple Moving Average (SMA). These could reinstate the focus on the upside.

Daily Chart

GBP/JPY Chart Created in Trading View

EUR/GBP Sentiment Outlook – Neutral

The IGCS gauge implies that roughly 58% of retail investors are net long EUR/GBP. Upside exposure has decreased by 4.71% on a daily basis while increasing by 11.15% from a week-on-week perspective. We typically take a contrarian view to crowd sentiment, and the fact that traders are net long suggests that prices may continue to fall. But, the combination of current sentiment and recent changes offers a mixed trading bias.

EUR/GBP Technical Analysis

EUR/GBP has extended lower after it pierced the 0.8861 – 0.8881 support zone in late January. Since then, prices have been trading within a bullish Falling Wedge chart pattern. This is as the pair sits above the 61.8% Fibonacci retracement level at 0.8747. A breakout above wedge resistance may open the door to revisiting the 0.8861 – 0.8881 support zone with the 50-day SMA sitting above. Otherwise, downtrend resumption may take the pair to the 0.8671 – 0.8695 support area established in April 2020.

Daily Chart

EUR/GBP Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from February 9th Report

— Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter