GBP/USD Stable But Gains At Risk

GBP/USD is looking steadier so far this week but, as the chart below shows, it remains close to the support line of a downward-sloping channel that has been in place since the start of June. If that should break then the pair would likely drop swiftly to at least 1.32, a level not seen since late last year, barring a brief foray below last week.

Photo by John McArthur on Unsplash

Note too that the relative strength index, or RSI, at the bottom of the chart has bounced off the 30 level that means it has been oversold.

GBP/USD Price Chart, Daily Timeframe (April 5 – December 7, 2021)

(Click on image to enlarge)

Image Source: IG 

Bank Of England In Focus

From a fundamental perspective, all eyes are on next Thursday’s UK interest rate decision by the Bank of England. Not so long ago, an increase was seen as almost certain but market pricing currently suggests only a 50/50 chance of a raise from the present 0.1%.

That change of heart is due principally to fears about the Omicron variant of Covid-19, although recent comments on it from both the US and South Africa have been broadly encouraging.

The change of mind on the chances of a rate hike was emphasized by comments by BoE policymaker Michael Saunders, who voted for an interest rate hike last month but said last Friday that he wanted more information about the impact of Omicron before deciding how to vote.

As for the data, figures released early this session by the Halifax division of Bank of Scotland showed UK house prices up by 8.2% year/year last month. That was reported to be the largest increase for 15 years but had little impact on the Pound.

Retail Trader Data Bullish GBP/USD

Turning to positioning, the latest IG client sentiment figures are currently sending out a bullish signal. The retail trader data show 72.33% of traders are net-long, with the ratio of traders long to short at 2.61 to 1. The number of traders net-long is 3.25% lower than yesterday and 7.95% lower than last week, while the number of traders net-short is 24.19% higher than yesterday and 7.54% higher than last week.

Here at DailyFX, we typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may fall. Yet traders are less net-long than yesterday and compared with last week, and the recent changes in sentiment warn that GBP/USD may soon move higher despite the fact traders remain net-long.