Path Clear For GBP/USD to Top 1.35

GBP price, news and analysis:

  • GBP/USD is well placed to extend its near-term rally that began on Tuesday last week.
  • For Sterling bulls there are two levels to watch out for: “round-number” resistance at 1.35 and then the high at 1.3516 touched on December 12 last year.
  • While the principal driver could be the weakness of USD, GBP looks independently firm despite a negative political background in the UK.

GBP/USD advance likely to extend higher

GBP/USD is in a good position to challenge “round-number” resistance at 1.35 and then the December 12, 2019 high at 1.3516 after the strong rally in the pair over the past week that has already taken it above 1.34.

GBP/USD Price Chart, Daily Timeframe (November 20, 2019 – September 1, 2020)

Chart by IG (You can click on it for a larger image)

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The advance in the pair has been due principally to USD weakness after the indications from the Federal Reserve that it will likely keep US interest rates low for the foreseeable future. However, GBP has been independently firm with EUR/GBP, for example, dropping back over the past week.

Note, though, that signals from IG client sentiment data are mixed. The retail trader data show 31.46% of traders are net-long, with the ratio of traders short to long at 2.18 to 1. The number of traders net-long is 26.18% higher than yesterday although 23.08% lower from last week, while the number of traders net-short is 0.38% higher than yesterday and 9.62% higher from last week.

Here at DailyFX we typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise. However, positioning is less net-short than yesterday but more net-short from last week, and the combination of current sentiment and recent changes gives us a mixed GBP/USD trading bias.

UK politics in focus

In the meantime, the political background in the UK could hold back a stronger extension higher in GBP/USD. The government has been criticised in recent days for its education policy, trade talks with the EU seem to have stalled and nervousness is emerging about possible tax rises in the November budget.

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Sep 01

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— Written by Martin Essex, Analyst

Feel free to contact me on Twitter @MartinSEssex

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