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British pound may rise as GBP/USD short bets build up

The British pound may rise against the US dollar as retail investors continue selling into the price trend. Will GBP/USD complete a bullish falling wedge chart pattern breakout?

Sterling Source: Bloomberg

British pound IG client sentiment - talking points

  • British pound may rise as short bets increase
  • GBP/USD confirms falling wedge breakout
  • 2019 resistance seems key technical barrier

GBP/USD IG client sentiment outlook

The British pound could be getting ready to extend recent gain against the US dollar based on signals from IG client sentiment (IGCS) gauge. On 8 July, the IGCS gauge implied that about 47% of retail investors were net long GBP/USD. This is as exposure to the downside increased by six percent and two percent over a daily and weekly basis respectively. Net long bets fell by five percent and six percent over the same periods.

We typically take a contrarian view to crowd sentiment, and the fact traders are net short hints GBP may keep rising. Recent adjustments in positioning offer a stronger bullish GBP/USD contrarian trading bias. From a psychological standpoint, this could speak to investors attempting to increasingly pick the next topping point in the British pound.

Learn more about forex and the dynamics behind currencies such as the British pound

GBP/USD Client Positioning

GBP/USD client positioning Source: DailyFX
GBP/USD client positioning Source: DailyFX

British pound technical analysis

A GBP/USD push above the top of a falling wedge, a bullish chart pattern, seemingly bolsters the case for gains. The pair confirmed an upside breakout in late June and the trajectory could see sterling retest peaks from last month’s key resistance between $1.274 and $1.2813. Taking this range out may open the door for resuming the bounce off March’s bottom.

However, falling resistance from December 2019 could maintain the dominant downtrend – blue parallel lines on the daily chart below. If this occurs, a turn lower would place the focus on rising support from May – the red line on the chart. Closing under this trend line, as well as $1.2252, could see the pair set course to revisit the May low at $1.2077. Beyond that level sit lows from 2016 and 2017.

Should prices extend gains in the aftermath of the falling wedge breakout however, as IGCS seems to be hinting is more likely, the British pound could push towards March 2020 highs. This area, between $1.3097 and $1.32, could stand in the way as resistance. A hold at this range may open the door to a reversal where the falling trend line from 2019 could stand in the way as new support.

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GBP/USD daily chart

GBP/USD daily chart Source: TradingView
GBP/USD daily chart Source: TradingView

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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