Analys från DailyFX
British Pound Plummets to Lows, but is it Too Much Too Soon?
The British pound has fallen to its lowest levels since 2010 as professional traders pile into short positions and disappointing economic data worsens GBP malaise. But we’re seeing evidence that the rally might be too much too soon, and indeed there’s material risk of a short-term bounce.
The British Pound has fallen about 5 percent in the past 3 weeks (15 trading days)—matching its worst decline since it hit multi-year lows in September, 2011. Indeed, the chart below shows that this 3-week Rate of Change has coincided with fairly important GBPUSD lows on many occasions.
British Pound Tumbles to Fresh Multi-Year Low Versus US Dollar
Source: FXCM Trading Station Desktop, Prepared by David Rodriguez
We likewise see evidence of extremely one-sided forex retail crowd sentiment as another sign of a potential GBPUSD low. Our proprietary FXCM Speculative Sentiment Index data measures retail forex trading sentiment via actual open trades. We most often use it to go against the crowd—if everyone’s buying, we typically want to sell and vice versa.
The SSI shows crowds have been long GBPUSD since it dropped below below $1.54 on June 26, which gave signal the British Pound might fall further.
Indeed, our sentiment-based Momentum2 system went short GBPUSD from $1.5377 and again from $1.5101. At the time we said that the US Dollar stood to rally further against the British Pound (GBPUSD decline) and others, and in fact Momentum2 was our favored GBPUSD trading strategy.
Since then however, forex trading crowds have bought so aggressively that we think it might be too much too soon. The total number of retail open orders long British Pound is at its highest since the GBPUSD set a major low in March of this year.
Retail Forex Traders Extremely Long the British Pound versus the US Dollar
Source: FXCM Speculative Sentiment Index, watch a video on the SSI
What does this all mean? In our opinion we could see a potentially significant GBPUSD low set in the next several days. Indeed our Senior Market Strategist Kristian Kerr thinks one-sided sentiment and cycle studies point to a larger US Dollar turnaround this week.
Kristian likewise points out that a major bank trading platform reports volume 3 times its recent range on the GBPUSD. Professional traders are usually on the correct side of the trade as they sell into downtrends and buy into uptrends.
But history shows that the pros are the most bullish at the top and bearish at the bottom; the big build in professional long positions warns we’re near a short-term turn. This is literally the opposite we see with our retail trader-based SSI data and helps confirm our SSI-based evidence.
Does this mean we’re looking to go long the GBPUSD today? Not exactly. I wrote on Monday that it’s quite possible the US Dollar gives back some of its recent gains, but I’ll actually look to a USD sell-off (GBPUSD bounce) as an opportunity to buy the dip (sell GBPUSD strength).
Our Senior Technical Strategist favors looking for an important near-term GBPUSD top near $1.50 or $1.51. And indeed, if the GBPUSD approaches key resistance it may represent an attractive selling opportunity.
— Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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