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Bullish techniques overcoming bearish seasonality

By on May 16, 2021 0

Technical forecast for the pound sterling: bullish

British Pound Rates Weekly Review

The second week of May brought more gains for the British Pound against all major currencies, which is now the best performer this month. The “ risk-free ” nature of global stock markets, combined with the decline in commodity prices, allowed the pound sterling to accumulate its biggest gains against the antipodean currencies, with the GBP / AUD and GBP / NZD rates rising. increased by + 1.57% and + 1.21%, respectively.

Meanwhile, even among safe havens, the British pound shone: GBP / JPY jumped + 1.49%; GBP / USD added + 0.74%; and GBP / CHF gained + 0.89%. As the second half of May approaches, the pound is in a better technical position to build on the gains of the first half of the month.

TECHNICAL ANALYSIS OF THE GBP / USD RATE: DAILY CHART (March 2020 to May 2021) (CHART 1)

British Pound Weekly Technical Forecasts: Bullish Techniques Overcome Bearish Seasonality

GBP / USD rates moved up slowly but steadily as they advanced through a bullish breakout of a descending triangular formation that formed from mid-February to mid-April. Now, GBP / USD rates are found at the ascending trendline of the lows of March and November 2020, the uptrend of the pandemic.

Now that the pair is treating the daily EMA envelope as support, evidence shows that bullish momentum is improving. Likewise, the Daily MACD is trending higher above its signal line and the Daily Slow Stochastics are holding close to the overbought territory. More gains could be ahead as the pair seeks to recover the base of the aforementioned descending triangle as well as the annual high at 1.4241.

IG Client Sentiment Index: GBP / USD rate forecast (May 14, 2021) (Chart 2)

British Pound Weekly Technical Forecasts: Bullish Techniques Overcome Bearish Seasonality

GBP / USD: Retail trader data shows 41.55% of traders are net long with a short / long ratio of 1.41 to 1. The number of net long traders is 3.76% higher than yesterday and 6.62% higher than last week, while the number of net-short traders is 0.18% lower than yesterday and 8.22% higher than last week.

We generally take a vexing view of crowd sentiment, and the fact that traders are net-short suggests that GBP / USD prices may continue to rise.

The positioning is less net-short than yesterday but more net-short than last week. The combination of current sentiment and recent changes gives us another GBP / USD blended trading bias.

TECHNICAL ANALYSIS OF THE GBP / JPY RATE: DAILY CHART (MARCH 2020 to May 2021) (CHART 3)

British Pound Weekly Technical Forecasts: Bullish Techniques Overcome Bearish Seasonality

GBP / JPY rates are best positioned among the three GBP crosses mentioned in this report. New annual highs emerged last week, and it looks like some base may be occurring above the old annual high set in early April. The daily EMA envelope is converging to the old high at 153.41 which was also the bearish key reversal candle daily high on April 6. A rally to the 2020 high of 156.61 may be approaching soon.

IG Client Sentiment Index: GBP / JPY rate forecast (May 14, 2021) (graph 4)

British Pound Weekly Technical Forecasts: Bullish Techniques Overcome Bearish Seasonality

GBP / JPY: Retail traders data shows 33.66% of traders are net long with a short to long ratio of 1.97 to 1. The number of net long traders is 9.63% higher than yesterday and 13.72% lower than last week, while the number of net-short traders is 3.29% lower than yesterday and 25.60% higher than last week.

We generally take a vexing view of crowd sentiment, and the fact that traders are net-short suggests that GBP / JPY prices may continue to rise.

The positioning is less net-short than yesterday but more net-short than last week. The combination of current sentiment and recent changes gives us another GBP / JPY blended trading bias.

TECHNICAL ANALYSIS OF THE EUR / GBP RATE: DAILY TABLE (MARCH 2020 to May 2021) (CHART 5)

British Pound Weekly Technical Forecast: Bullish Techniques Overcome Bearish Seasonality

EUR / GBP rates have traded choppy in recent weeks, and for better or worse a side range has been sliced ​​between the 61.8% (0.8747) and 76.4 Fibonacci retracements. % (0.8569) of the 2020 high / low range. A lack of conviction among momentum indicators, as well as the pair being currently entangled in its daily envelope of 5, 8, 13 and 21 EMA offers little belief for a directional bias at the present time.

IG Client Sentiment Index: EUR / GBP rate forecast (May 14, 2021) (Chart 6)

British Pound Weekly Technical Forecasts: Bullish Techniques Overcome Bearish Seasonality

EUR / GBP: Retail traders data shows 62.36% of traders are net long with the long / short ratio of traders at 1.66 to 1. The number of net long traders is 5.21% lower than that yesterday and 29.56% higher than last week, while the number of net-short traders is 0.54% higher than yesterday and 22.29% lower than last week.

We generally take a vexing view of crowd sentiment, and the fact that traders are net long suggests that EUR / GBP prices may continue to decline.

The positioning is shorter than yesterday but longer than last week. The combination of current sentiment and recent changes gives us another EUR / GBP blended trading bias.

Positioning of CFTC COT sterling futures contracts (May 14, 2020 to May 14, 2021) (graph 7)

British Pound Weekly Technical Forecasts: Bullish Techniques Overcome Bearish Seasonality

Finally, a reflection on the positioning on the futures market. Aaccording to the CFTC TOC for the week ended May 11 speculators increased eeir sterling long net positioning at 28.2K contracts versus 19. contracts held the previous week. Futures positioning and GBP / USD spot rates have maintained a statistically significant positive correlation over the past six months at +0.89.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

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