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Sterling sentiment coming off extremes as GBP/USD tests resistance

Sterling is attempting a sixth weekly advance with GBP/USD eyeing resistance just as sentiment begins to wane. These are the levels that matter on the technical charts.

Sterling sentiment, price and analysis

  • Sterling rallies to highest levels vs US dollar since April 2018
  • GBP/USD retail short positioning extends into multi-month extremes
  • Rally vulnerable as price approaches key technical resistance into $1.40

The British pound is attempting to mount the sixth consecutive weekly rally as Sterling surges to fresh multi-year highs. The advance may be vulnerable however with the price approaching the first major technical resistance barrier as retail sentiment extends to multi-month extremes - we’re looking for a reaction off this mark in the days ahead.

Sterling trader sentiment – GBP/USD price chart

A summary of IG client sentiment (IGCS) shows that 36.52% of traders are net-long GBP/USD as the price drifts into multi-year highs. The number of traders net-long is 0.08% lower than yesterday and 1.83% higher from last week while the number of trader net-short is also lower on whole, down 12.25% from yesterday and 9.36% from last week. We typically take a contrarian view to crowd sentiment and the fact traders are net-short suggests GBP/USD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week and the recent changes in sentiment warn that the current GBP/USD price trend may soon reverse lower despite the fact traders remain net-short.

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Sterling price chart – GBP/USD weekly

Technical outlook

A breakout above a critical resistance barrier at $1.3675-$1.3743 last week has fueled a rally of more than 1.6% with the advance now testing the first major technical confluence at the 61.8% extension of the 2020 rally/2018 high-week close at $1.3955/97- looking for inflection off this zone with the immediate advance vulnerable while below.

Initial weekly support rests at the objective monthly open at $1.3711 with a weekly close below $1.3675 needed to suggest a more significant reversal is underway. A topside breach/close above this threshold would keep the focus on subsequent topside resistance objectives into the 50% retracement of the 2014 decline at the $1.43-handle.

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