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Sterling Price Outlook: GBP/USD Remains Bearish on Rallies


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GBP/USD Analysis and News:

  • First Signs of a De-Escalation Trade, Outlook Remains Highly Uncertain
  • GBP/USD Client Sentiment Data Signals a Bearish Outlook

Sterling Price Outlook: GBP/USD Remains Bearish on Rallies

First Signs of a De-Escalation Trade, Outlook Remains Highly Uncertain

Aside from the US announcing that it will ban oil imports from Russia, who were also partly joined by the UK. The main headline overnight had been reports that the Ukrainian President is no longer insisting on NATO membership, which had been among Russia’s key reasons for invading Ukraine. Additionally, the Ukrainian President also hinted that he was open to a compromise on the status of two breakaway pro-Russian territories. In turn, today’s relief rally appears to be the first signs of a de-escalation trade with equities notably firmer, meanwhile gold and oil prices are under pressure. However, as has been made abundantly clear, headline risk remains elevated with market sentiment able to change on a whim from headline to headline. Moreover, while talks perhaps maybe showing slight signs of a moving in the right direction, gauging the timing of a breakthrough remains incredibly uncertain.

That being said, while the Euro has seen a modest reprieve with the single currency edging back towards the 1.10 handle, the bias remains bearish on rallies. The same can be said for the Pound, which will struggle in an environment of stagflation. In light of the current backdrop, the Bank of England’s most recent inflation forecast already appears outdated amid the latest surge in oil prices. For now, short-covering and technical support in the form of the 200WMA is underpinning GBP/USD, but risks remain lower for a test of the 1.3000 handle.

GBP/USD Chart: Weekly Time Frame

Sterling Price Outlook: GBP/USD Remains Bearish on Rallies

Source: Refinitiv

GBP/USD Client Sentiment Data Signals a Bearish Outlook

Data shows 73.46% of traders are net-long with the ratio of traders long to short at 2.77 to 1. The number of traders net-long is 1.64% higher than yesterday and 9.33% higher from last week, while the number of traders net-short is 12.70% lower than yesterday and 23.22% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall.

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bearish contrarian trading bias.

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    • EUR/USD and GBP/USD are topping out while EUR/GBP rallies Outlook on EUR/USD, EUR/GBP and GBP/USD as traders re-access last week’s Fed, ECB and BoE rate hikes and exceptionally strong US unemployment data.  Axel Rudolph FSTA | Senior Financial Analyst, London | Publication date: Monday 06 February 2023  EUR/USD is seen topping out EUR/USD’s rally to its ten-month high at $1.1033 came to an abrupt end last week as the US dollar regained some of its recent losses on the back of the US Federal Reserve’s (Fed’s) 25-basis point rate hike, with the fed funds rate rising to 4.50%-4.75%, and much stronger-than-expected non-farm payroll (NFP) data on Friday. EUR/USD has since given back over 2% and is fast dropping towards its $1.0766 to $1.0715 support zone, made up of the December highs and mid-January low, despite German factory orders rising by 3.2% month-on-month in December of 2022 versus an anticipated rise by 2% and reversing from a downwardly revised 4.4% tumble in November. The speed and depth of the last few days’ decline in the cross points towards at least a several day and perhaps week-long pause in the EUR/USD medium-term uptrend. A fall through $1.0715 would engage the 55-day simple moving average (SMA) at $1.0661.Resistance can be spotted along the breached November-to-February uptrend line at $1.0827 and above it at the $1.0887 mid-January high. Source: IT-Finance.com EUR/GBP is gunning for the minor psychological £0.9000 mark EUR/GBP’s steep ascent last week has taken the currency pair so far to £0.8978 and thus close to the psychological £0.90 mark which is now in focus as the British Pound is depreciating while the euro remains strong, following last week’s respective 50-basis point rate hikes by the European Central Bank (ECB) and the Bank of England (BoE). The cross is trading at levels last seen in September of 2022 and may begin to lose some of its recent strong upside momentum around the £0.90 mark. Further up sits the 28 September high at £0.9066.Support can be found around the January high at £0.8897 and then at the £0.8877 December high, ahead of the 25 January £0.8852 high. Source: IT-Finance.com GBP/USD slips back to towards the lower end of its two-month trading range [currencies:GBP/USD’s] recent failure around the December high at $1.2446 has provoked a swift sell-off which is taking the currency pair back towards the lower end of its December-to-February trading range seen between $1.2448 and $1.1841 as the British pound weakens on fears that the UK economy is sliding into recession. The first downside target is the 200-day SMA at $1.1955, around which the cross may find short-term support. Further down sits the $1.1841 early-January low with resistance being spotted along the 55-day SMA at $1.218. Source: IT-Finance.com
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