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GBP/USD sentiment data pointing to weakness ahead

As the United Kingdom prepares to leave the European Union at the end of this month, retail trader positioning figures suggest that GBP/USD could slide lower.

GBP/USD price, news and analysis:

  • Retail trader positioning figures show that traders are increasingly net-long GBP/USD, expecting the pair to strengthen.
  • From a contrarian perspective, that suggests sterling may well weaken against the US dollar in the days ahead.

GBP/USD outlook bearish

Retail traders have become increasingly optimistic about the outlook for GBP/USD so far this year, suggesting that from a contrarian view of crowd sentiment further weakness could lie ahead.

As the chart below shows, the percentage of IG retail clients net-long GBP/USD fell back from mid-December. However, since the start of this year, net-long positions have increased again. Currently, almost 63% of traders using IG are net-long, with the ratio of traders long to short at 1.70 to one.

GBP/USD Sentiment Data (January 9, 2020)

Dollar on the up for EUR/USD, GBP/USD and USD/JPY

Retail traders may have been encouraged by signs of an improved relationship between the UK Government and the European Union ahead of Brexit on January 31. However, a comprehensive trade deal between the EU and the UK by the end of this year is becoming increasingly unlikely. That’s marginally bearish for sterling although the mood music between the two sides has improved.

European Commission President Ursula von der Leyen, who visited London this week, was quoted as saying that “the UK and the EU will not be able to agree on every single aspect of their future relationship before the end of the year, and will either have to focus on priority areas or agree an extension period”.

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The EU’s chief Brexit negotiator Michel Barnier also warned that the timeframe for a new deal with the UK is hugely challenging, adding that if the EU were to agree on every point of the future relationship with the UK it would take more than 11 months, going on to say that the EU will have to prioritise what it does in 2020.

On the UK side, a spokesperson for Prime Minister Boris Johnson stressed again that there will be no extension beyond December. “We are very clear we want to get on in terms of negotiating a deal,” the spokesperson told reporters. “So maybe the approach of nothing is agreed until everything is agreed, which characterised previous negotiations, is not an approach that we are interested in taking.”

The information 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 Bank S.A. 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 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. See full non-independent research disclaimer.

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