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.
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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.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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