GBP/USD: Technicals turn volatile following record low

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It was a tough end of the week for the pound, which underperformed sizably amongst the FX majors. And priced against the surging greenback only made for fresh lows, exacerbated this morning with a record low.

Late last week we saw the Bank of England (BoE) raise rates by 50bp taking its key rate to 2.25% and confirming asset sales, with bond yields surging and the pond plummeting after the fiscal policy updates last Friday.

As for economic data out of the UK, preliminary PMIs were both in contracting territory with a miss for services at 49.2 and a beat for manufacturing at 48.5, but the focus remains on the bond market and fiscal policy, and the potential for an emergency policy change out of the BoE.

GBP/USD technical analysis, overview, strategies, and levels

The pair’s previous weekly 1st Support level initially held giving a little for contrarian buy-fade strategies in line with some of the other weeks where we lacked significant follow-through, but Friday's move broke past both 1st and 2nd levels with ease giving conformist sell-breakouts the obvious edge, with Thursday's daily time frame’s 1st Resistance level initially stopping out conformist sell-on-reversals before the move the next day gave conformist sell-breakouts the clear win.

In all, its key technical indicators in both time frames are in the red with an ADX (Average Directional Movement Index) reading for both showing a propensity to trend, but we're in more volatile territory at this stage, and could make it breakout vs. reversal when it comes to conformist and contrarian strategies instead of previous buy vs. sell, the morning plummet already boing past this week’s weekly 1st Support level and briefly (as of writing) past its 2nd Support.

IG client* and CoT** sentiment for GBP/USD

CoT speculator bias remains heavy to the sell side, GBP longs up 160 lots and shorts dropping 13,083. The report is released Friday night, but positions are as of last Tuesday and hence prior to the plummet seen last Friday and this morning (and will be reflected in this Friday’s release).

Retail trader bias started off the week in further extreme buy territory at 85%, but following the price drop this morning has seen sentiment fall a bit but still near the extremes.

GBP/USD Chart with retail and institutional sentiment

*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of today morning 8am for the outer circle. Inner circle is from the previous trading day.
**CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.