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GBP/USD Institutional Positioning Turns Bearish Ahead of UK GDP Print


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GBP/USD ANALYSIS:

  • Latest CoT data indicates bearish GBP Positioning
  • Major risk events: UK GDP, US CPI
  • GBP/USD Key Technical Levels
 

‘SMART MONEY’ RETURNS TO BEARISH GBP POSITIONING

Large institutions and hedge funds (profit-seeking organisations) increased their short Sterling holdings while a decline in longs was also observed. This means that the overall ‘mood’ of the market has soured somewhat to the Pound as net- short positioning climbs once more. These bigger players in the market are often referred to as the ‘smart money’ due to their track record of positive returns and sophisticated market knowledge.

Prior to the latest data, the trend revealed reductions in shorts and a slow increase in longs (meaning a more bullish GBP bias) as the Pound climbed higher. As shorts and longs diverge, retail (IG) client sentiment is rather undecided as long and short traders are close to 50/50. Should GBP/USD continue to decline, history has shown us that retail sentiment tends to become more long (attempting to call the dip), while hedge funds pile into shorts.

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Commitment of Trader’s Report -CFTC

GBP/USD Institutional Positioning Turns Bearish Ahead of UK GDP Print

Source: Refinitiv, CFTC CoT Report

MAJOR RISK EVENTS FOR THE WEEK AHEAD

On Thursday we have US core and headline CPI data due with 7.3% estimated for headline inflation after the 40 year high of 7% reported for December. Given the current hawkish expectations around Fed monetary policy, a print inline with expectations may not have much of an effect on the pair but a beat could send GBP/USD lower. Then on Friday we see preliminary US Michigan consumer Sentiment.

Also on Friday, preliminary UK GDP is due for Q4 and December. The effects of Omicron, despite being mild, did result in weaker retail sales year on year in December which may carry over into the GDP numbers. Nevertheless, the GDP growth rate is forecast to be 6.5%

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GBP/USD KEY TECHNICAL LEVELS

GBP/USD trades around the 1.3515 level at the time of writing, coming off a half a percentage point on Friday after relatively strong US NFP jobs data. Should recent selling continue, the next level of support lies at 1.3410/1.3400 before 1.3280 which is still some distance away.

Should GBP/USD close convincingly above the 1.3515 level, 1.3600 becomes immediate resistance followed by 1.3675. The pair may continue in a rather choppy fashion as BoE and Fed rate hike expectations increase in tandem, offering little to support any clear and obvious trend.

 

GBP/USD Daily Chart

GBP/USD Institutional Positioning Turns Bearish Ahead of UK GDP Print

Source: IG, prepared by Richard Snow

The 4-hour chart shows the relative strength of the latest 4 hour candle, breaching the 1.3515 level.

GBP/USD 4 -Hour Chart

GBP/USD Institutional Positioning Turns Bearish Ahead of UK GDP Print

Source: IG, prepared by Richard Snow

 

 

 

Written by Richard Snow for DailyFX.com. 7th Feb 2022

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12 hours ago, RCtrader said:

Technically, bulls are safe for now. 😉

GBPUSD chart

Hi @RCtrader

GBP/USD has been fluctuating in a relatively tight channel since the beginning of the week with investors waiting for the next catalyst. The near-term technical outlook confirms GBP/USD's indecisiveness and suggests that the pair needs to move out of the 1.3500-1.3560 band to determine its next direction.

Although the dollar is finding demand on rising US Treasury bond yields early Tuesday, the positive shift witnessed in risk sentiment is helping the British pound stay resilient against its peers. Reflecting the upbeat market mood, the UK's FTSE 100 Index is up nearly 0.7% and the S&P Futures are posting small daily gains.

Nevertheless, the dollar could continue to gather strength in case the benchmark 10-year US T-bond yield rises above the critical 2% level. At the time of press, the 10-year yield was rising more than 1% on the day at 1.94% and the US Dollar Index was up 0.2% at 95.62.

There won't be any macroeconomic data releases from the US on Tuesday that could trigger a significant market reaction and participants will pay close attention to US yields. Moreover, GBP/USD should remain at the mercy of the dollar's market valuation in the absence of fresh developments on the UK political front. FXStreet

 

GBP/USD holds in corrective territory ahead of key events later in the week
NEWS | 2/8/2022  | By Ross J Burland

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