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Retail Shorts Jump 30% as GBPUSD Claws Back from 2019 Low

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British Pound Talking Points

GBPUSD pulls back from the monthly-high (1.2385) even though the UK Parliament pushes through legislation to block a no-deal Brexit, but the recent rebound in the exchange rate appears to be spurring a shift in retail interest as net-short positions jump 30% from the previous week.

Retail Shorts Jump 30% as GBPUSD Claws Back from 2019 Low

Headlines surrounding Brexit may continue to sway GBPUSD as Prime Minister Boris Johnson will be forced to request a three-month extension if a deal is not achieved by October 19, and UK lawmakers may put increased pressure on the new government to reach an agreement with the European Union (EU) as Parliament rejects plans for a snap election.

It remains to be seen if PM Johnson will be able to strike a deal with less than 60 days left until the October 31 deadline, and the risk of a delayed Brexit may push the Bank of England (BoE) to alter the forward guidance for monetary policy as “increased uncertainty about the nature of EU withdrawal means that the economy could follow a wide range of paths over coming years.

Nevertheless, the BoE is likely to retain the current policy at the next meeting on September 18 as Governor Mark Carney and Co. insist that “the monetary policy response to Brexit, whatever form it takes, will not be automatic,” and recent comments from Monetary Policy Committee (MPC) member Gertjan Vlieghe suggests the central bank is in no rush to switch gears as “the total monetary firepower is less than we had in the period leading up to previous recessions.”

With that said, a delayed Brexit may keep the BoE on the sidelines ahead Governor Carney’s departure in January 2020, but the recent rebound in GBPUSD appears to be shaking up retail interest as the exchange rate claws back from the lowest level since the British Pound flash crash in 2016.

Image of IG client sentiment for gbpusd

The IG Client Sentiment Report shows64.6%of traders are still net-long GBPUSD compared to 73.7% last week, with the ratio of traders long to short at 1.83 to 1.

Keep in mind, traders have remained net-long since May 6 when GBPUSD traded near the 1.3100 handle even though price has moved 5.8% lower since then.The number of traders net-long is 6.2% lower than yesterday and 18.7% lower from last week, while the number of traders net-short is 1.0% lower than yesterday and 30.0% higher from last week.

The decline in net-long position suggests stops were triggered during the first full week of September as GBPUSD slipped to a fresh yearly-low (1.1958), but the recent jump in net-short interest comes as the exchange rate works its way back towards the former-support zone around 1.2370 (50% expansion) to 1.2440 (50% expansion).

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GBP/USD Rate Daily Chart

Image of gbpusd daily chart

Source: Trading View

  • The broader outlook for GBP/USD is no longer constructive as the exchange rate snaps the upward trend from late last year after failing to close above the Fibonacci overlap around 1.3310 (100% expansion) to 1.3370 (78.6% expansion).
  • Recent developments in the Relative Strength Index (RSI) brings the downside targets back on the radar as the oscillator snaps the bullish formation from the previous month, but the failed attempt to break/close below the Fibonacci overlap around 1.1890 (61.8% expansion) to 1.1950 (78.6% expansion) may keep the exchange rate afloat as it appears to be breaking out of the bearish trend carried over from May
  • Need a break/close above the former-support zone around 1.2370 (50% expansion) to 1.2440 (50% expansion) to open up the next topside hurdle around 1.2630 (38.2% expansion) to 1.2640 (38.2% expansion).

For more in-depth analysis, check out the 3Q 2019 Forecast for the British Pound

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— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.



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UK Markets Wait For Supreme Court Ruling, Brexit Update

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Sterling (GBP) News, Charts and Analysis – Webinar

  • UK Supreme Court ruling due shortly
  • UK PM Johnson to meet EU leaders on the sidelines at the United Nations

Q3 2019 GBP Forecasts and Top Trading Opportunities

UK asset markets are flat to slightly lower at the start of the week with traders waiting for the UK Supreme Courts ruling on whether PM Johnson’s recent shuttering of Parliament was legal or not. The judgement is expected early this week and will have a direct influence on UK assets one way or another.

This week PM Johnson will meet with European leaders at the United Nations General Assembly meeting to discuss the latest Irish backstop developments. Recent positive commentary has boosted the value of the British Pound until a report this weekend that European Commission President Jean-Claude Juncker sees a return to a hard border in Ireland pushed GBP lower.

There is a lack of front-line UK economic data this week to influence trading but speaches from BoE governor Mark Carney and other UK central bank officials should be followed closely.

GBPUSD has drifted lower through the session but has not threatened the recent 1.1959 low made earlier this month.

DailyFX Economic Calendar

GBPUSD Price Daily Chart (January – September 23, 2019)

UK Markets Wait For Supreme Court Ruling, Brexit Update - Webinar

Brexit Glossary: Brexit Jargon and Terms Explained

The IG Client Sentiment Indicator shows retail traders are 65.0% net-long, a bearish contrarian bias.

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on Sterling – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.comor via Twitter @nickcawley1.



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EUR/USD Price Slumps as Germany PMI Data Points to Recession

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EURUSD Price Charts and Analysis:

  • EURUSD may sink further as 1.1000 gives way again.
  • Germany is expected to be in recession in Q3.

Q3 2019 EUR and USD Forecasts and Top Trading Opportunities

EURUSD Sinks as German Economic Woes Continue

The German economy is likely to fall into recession in the third-quarter of 2019, ‘as the downturn in manufacturing deepened and service sector growth lost momentum’, according to data provider IHS Markit. The composite index hit its lowest level since October 2012, while the manufacturing numbers are ‘simply awful’ according to the data provider. Germany is expected to enter an official recession in Q3 and may not see any growth this year.

According to Phil Smith, principal economist at IHS Markit, “The manufacturing numbers are simply awful. All the uncertainty around trade wars, the outlook for the car industry and Brexit are paralyzing order books, with September seeing the worst performance from the sector since the depths of the financial crisis in 2009. “With job creation across Germany stalling, the domestic-oriented service sector has lost one of its main pillars of growth. A first fall in services new business for over four-and-a-half years provides evidence that demand across Germany is already starting to deteriorate.”

EUR/USD Price Slumps as Germany PMI Data Points to Recession

EURUSD continues to point lower and may re-test the two recent low prints around 1.0925 made earlier this month. Below here there is very little in the way of strong support. There is a gap in April 2017 on the weekly chart between 1.0777 and 1.0821 which is likely to be filled in the short-term, before the January 2017 low at 1.0340 comes into play. In the current environment is looks very unlikely that EURUSD will break back above the cluster of lows/highs around 1.1100 and 1.1120.

EURSUD Price Daily Chart (January – September 23, 2019)

EUR/USD Price Slumps as Germany PMI Data Points to Recession

The IG Client Sentiment Indicator shows retail traders are 65.0% net-long of EURUSD, a bearish contrarian bias.

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on the Euro – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.comor via Twitter @nickcawley1.



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US Dollar ASEAN Outlook Bullish, Trade Deal Hopes Fade, PHP at Risk

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ASEAN Fundamental Outlook

  • US Dollar remained in persistent consolidation mode against ASEAN FX
  • Drop in US-China trade deal hopes to fuel USD gains on haven demand
  • Philippine Peso also eyeing central bank rate decision, SGD to CPI data

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US Dollar and ASEAN FX Weekly Recap

At first glance, the US Dollar seemed to outperform against its major counterparts when using an equally-weighted index this past week. But the reality is that from a technical standpoint, the Greenback is still in a persistent consolidative mode since the end of July. Its lack of commitment also spread into against some of its ASEAN and Southeast-Asia fiat counterparts.

A couple of notable exclusions this past week were the Singapore Dollar and Indonesian Rupiah – see chart below. The former tends to closely trace the Greenback. The IDR saw most of its decline during the front-half of the week, when an attack on Saudi Arabian energy infrastructure caused an oil shock that triggered risk aversion. The commodity has since partially subsided as markets turned to the Fed and US-China trade talks.

The US central bank delivered its second interest rate cut, keeping the door open to “extensive cuts” should they be needed. Meanwhile, the Bank of Indonesia delivered a third reduction in benchmark lending rates this year. But the Rupiah was left unchanged as the central bank reiterated efforts to guard their currency. Prior to Friday’s close, ASEAN currencies suffered as Chinese delegation teams canceled trips to US farms.

Check out my Singapore Dollar currency profile to get acquainted with its unique character in markets!

US Dollar ASEAN Outlook Bullish, Trade Deal Hopes Fade, PHP at Risk

US-China Trade Deal Hopes Once Again Diminish

Once top-tier economic event risk passed last week, it was clear how important US-China trade talks were to financial markets. As mentioned earlier, once reports crossed the wires that Chinese officials canceled trips to farms in Montana and Nebraska, aggressive risk aversion kicked in. The MSCI Emerging Market index covered its upside gap from the onset of Friday’s session as US government bond yields tumbled.

The actions from Chinese officials were in response to comments from US President Donald Trump, who mentioned that he would not accept a partial deal, adding that ending the trade war by 2020 is not his priority. Taking a look at the next chart below, prospects of the two nations agreeing to an outcome has helped to drive capital flowing back into emerging markets since late August.

Emerging Market Capital Flows Amid Trade Wars

His lack of interest in wanting an interim deal diminished prospects of an agreement, which can be viewed by the reaction in financial markets on Friday. Talks between the two nations restarted this past week ahead of a high-level meeting anticipated between the economic powerhouses in the middle of October. This is why the US delayed imposing additional $250b in tariffs on China by two weeks to around the same time.

With trade wars still are a persistent threat to global economic health, this bodes ill for risk capital and will likely adversely impact currencies such as the Philippine Peso, Malaysian Ringgit, Singapore Dollar and Indian Rupee. Meanwhile, the highly-liquid US Dollar – still increasing its dominance as the world’s most widely-traded currency – is likely to benefit against them.

ASEAN Economic Event Risk

Focusing on ASEAN regional economic event risk in the week ahead, a top-tier item will be the Philippine central bank interest rate announcement. Much like the easing that we have seen from central banks in the world, the BSP is anticipated to continue the trend. The benchmark lending rate is widely expected to be lowered from 4.25 percent to 4.00 on Thursday.

As such, its surprise factor is diminished, with the central bank governor also hinting at further reductions in reserve requirement ratios. This does mean however that the Philippine Peso will continue to lose its yield advantage (alongside MYR, IDR) which is a long run threat for the currency. Inflation data will also be eyed out of Singapore and Malaysia.

For timely updates on ASEAN and Southeast Asia currencies, make sure to follow me on Twitter here @ddubrovskyFX

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— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter



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