GBP/USD Falls Ahead of High Importance US Data

Pound Sterling (GBP/USD) Analysis

• GBP/USD struggles to build positive momentum as USD makes a comeback
• Lack of bullish drivers for GBP ahead of high impact US data highlights bearish path
• IG client positioning reveals further divergence in positioning – contrarian bearish bias maintained
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

GBP/USD Struggles to Build on Positive Momentum as the Dollar Makes a Comeback

Sterling has lost ground to the dollar in recent trading sessions after UK wages advanced at a slower pace than expected and the jobs market improved ever so slightly. UK wage growth attracts a lot of attention from central banks as they attempt to avoid a wage-price spiral. UK wages, while still elevated, rose at a slower pace than expected in August, adding to market expectations that the Bank of England (BoE) has hiked rates for the last time.

The unemployment rate did tighten up slightly from 4.3% to 4.2% but the trending data has seen a notable easing in the labour market which is typically a sign that restrictive monetary policy is working through the real economy and weighing on price pressures.

The attempt to build on bullish price action stalled and ultimately reversed ahead of 1.2345. GBP/USD now looks more likely to test support at the prior swing low of 1.2039, followed by the psychological level of 1.2000 potentially.

With high importance US data to come, observers may anticipate a further slide in the pair given the lack of bullish drivers for the pound. US data has shown a tendency for positive surprises in recent, notable data points like NFP and even US retail sales and therefore, another surprise could spur on US further. Resistance appears at 1.2200.

GBP/USD Daily Chart

Source: TradingView, prepared by Richard Snow

IG Client Sentiment Reveals Wider Divergence in Positioning

Source: TradingView, prepared by Richard Snow

GBP/USD:Retail trader data shows 73.82% of traders are net-long with the ratio of traders long to short at 2.82 to 1.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall.

The number of traders net-long is 3.40% higher than yesterday and 1.42% higher from last week, while the number of traders net-short is 1.80% higher than yesterday and 0.14% higher from last week.

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bearish contrarian trading bias.

High Importance Event Risk

At 13:30 markets are likely to look right past the durable goods data and focus on the first look at the Q3 GDP data where the consensus estimate has witnessed an upward revision from 4.1% in recent days to 4.3%. The shift raises the bar for an upward surprise but a good print is still likely to see the dollar supported after stringing together a few solid trading sessions.

Then on Friday PCE inflation data takes center stage. US CPI data for September revealed stubborn price pressures, resulting in a surge in USD strength as traders adopted the view that the Fed may be forced into raising the Fed funds rate one more time. US data has shown a tendency to surprise to the upside recently as NFP and US retail produced strong figures.

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— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX