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Bearish EUR/GBP signal from IG client sentiment data

The number of retail traders expecting EUR/GBP to rise is growing strongly, and from a contrarian standpoint that suggests an extension of the cross’s recent sharp decline.

Bearish signal for EUR/GBP

  • Retail traders are moving increasingly to net-long EUR/GBP positions.
  • From a contrarian standpoint, that suggests further losses for the cross, which has already fallen back sharply.

EUR/GBP net-long positions rising strongly

Positioning data from retail traders using IG show that traders are almost evenly balanced between those who are net-long EUR/GBP, expecting the cross to rise, and those who are net-short, expecting it to fall. However, the number net-long is surging, up 7.57% from Tuesday and 29.63% higher than last week, while the number of traders net-short is 0.23% higher than on Tuesday but 9.78% lower than last week.

At DailyFX, IG’s news and research website, we typically take a contrarian view to crowd sentiment, and the fact traders are now marginally net-long suggests EUR/GBP may continue its recent slide downwards. More importantly, traders are much further net-long than on Tuesday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/GBP-bearish contrarian trading bias.

The signal comes after a long run lower in EUR/GBP in the last few days of July and throughout August.

EUR/GBP price chart, four-hour time frame (July 27 – September 2, 2020)

The cross is now back to levels last seen on June 9 despite a continuing lack of progress in the talks between the UK and the EU on their post-Brexit relationship. The prospect of 'no deal' tends to be negative for sterling against the euro but for now at least traders seem willing to shrug off the current impasse.

This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. See our Summary Conflicts Policy, available on our website.

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