GBP/USD uptrend may prolong as sterling reversal bets rise

GBP/USD extended gains after taking out a long-term trendline from 2007. Retail trader positioning hints that the British pound may have more room to rally ahead.

GBP/USD technical analysis: talking points

  • GBP/USD continues to climb above 2007 trendline
  • Retail trader positioning hint the pound may rise next
  • Upside momentum does seem to be fading however

British pound technicals

On the weekly chart, GBP/USD continues to push above a long-term falling trendline going back to 2007. From a technical standpoint, more gains could be in store given confirmation of the breakout at this point. Now, the prices are approaching the upper edge of the $1.3504 to $1.3836 inflection zone established in 2009. A push above this zone could pave the way for a retest of 2018 highs between $1.425 and $1.4377.

Find out more about trading GBP/USD and forex

Zooming in on the daily chart can offer a better picture of the obstacles to watch out for in the near term. Negative relative strength index (RSI) divergence has been showing fading upside momentum, which can at times precede a turn lower. This is as GBP/USD climbed above the midpoint of the Fibonacci extension at $1.3711. That has exposed the 61.8% level at $1.3955. Should prices turn lower, keep a close eye on rising support from March. The latter may reinstate the focus to the upside in the event fading momentum transpires into a pullback.

GBP/USD IG client sentiment outlook

Meanwhile, IG client sentiment (IGCS), which is typically a contrarian indicator, paints a picture that may support the pound ahead. The tool showed on 8 February that about 34% of retail traders were net long GBP/USD. Downside exposure had increased by 14.92% and 35.90% over a daily and weekly basis respectively.

Simultaneously, upside bets climbed by 11.57% while decreasing 30.28% over identical time frames. The fact traders are net short suggests prices may continue rising. The combination of current sentiment and recent changes offers a stronger bullish contrarian trading bias. From a psychological perspective, this could mean a dynamic where traders continue increasingly betting on a top as prices climb.

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