The British Pound has been enjoying a push higher since prices found a bottom in the middle of September. As GBP/USD and GBP/JPY rallied, retail traders increased their downside exposure, perhaps hoping for a turn lower. This can be seen by looking at IG Client Sentiment (IGCS), which tends to function as a contrarian indicator. Recently, investors have been starting to increase upside exposure. Could this be a sign of weakness to come for GBP?
GBP/USD Sentiment Outlook – Bearish
The IGCS gauge shows that only about 59% of retail traders are net-long GBP/USD. Since most traders are net-long, this suggests that prices may continue falling. Upside exposure has increased by 1.86% and 7.45% compared to yesterday and last week, respectively. With that in mind, the combination of current sentiment and recent changes offers a stronger bearish contrarian trading bias.
GBP/USD faces the critical long-term falling trendline from the beginning of this year. That has been maintaining the broader downside focus. Meanwhile, near-term rising support from September seems to be offering an immediate upside bias. With that in mind, a breakout seems to be imminent. Clearing the 1.1639 – 1.1738 resistance zone opens the door to facing August highs. On the other hand, falling under rising support opens the door to revisiting the September low down the road.
GBP/JPY Sentiment Outlook – Bearish
The IGCS gauge reveals that about 28% of retail traders are net-long GBP/JPY. Since most traders are net-long the currency pair, this suggests that prices may continue rising. The number of traders net-long is 2.56% and 28% higher compared to yesterday and last week, respectively. With that in mind, recent changes in sentiment warn that the price trend may soon reverse lower despite most people being net short.
On the daily chart, GBP/JPY appears to be attempting to confirm a breakout under rising support from September. That may open the door to a reversal. Immediate support appears to be the former 167.63 – 168.72 resistance zone. Breaking under the latter may accelerate such a reversal toward the October low. Otherwise, extending gains places the focus on the 78.6% Fibonacci extension at 173.