Technical analysis: cautious optimism about GBP
GBP/USD rises, extended positioning presents risk
As the first quarter ended, most of GBP/USD’s early quarter profits peaked at 1.4235 and then rebounded significantly. On the other hand, the closing price below 50DMA confirms that the pair, which in the short term could expand to 100DMA in the short term, and expand to the several-month uptrend line below, peaked in the short term. Additionally, GBP/USD’s speculative net position is approaching an expanded level, reinforcing the risk that a loss of positioning could bring the pair to 1.35.
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However, the move to 200DMA will be too far from our point of view, especially as the previous short-term high (August 2020) has seen a 5% decline, while the current decline has reached around 4%. That said, as we enter the second quarter, we are recognizing that GBP/USD is approaching a seasonal bullish (April) rising in September, which averaged 1.6% over the past decade. That’s a factor we can’t discount and very easily focus on 1.40. However, while we are entering the pound’s peak month, the weakest month is just leading up to May. All in all, we are cautiously optimistic that the pound could go up further and that this view would be more encouraging if the uptrend for several months stays the same.
GBP/USD daily chart
GBP/USD Net Speculative Positioning (% of OI) – 3-year z-score
EUR/GBP range respected by default
It has been a one-way deal against EUR/GBP since the beginning of the year, and YTD has fallen 4%. Brexit risk premiums and the loosening of a lucrative vaccine launch program were one of the key elements of the ongoing slide. In short, Fundamentals continue to support the view that a bearish trend could continue as the UK unveils its normalization roadmap, and the EU is heading towards a third wave of Covid. Looking at the chart, since the backend in February, EUR/GBP has consolidated between 0.8540-0.8640, so the technology doesn’t necessarily match the fundamentals yet.
Meanwhile, the bullish divergence of the RSI could also stop the decline. However, bears will continue to respect the well-defined range and will be comforted for their RSI not exceeding 50. For the second quarter, range breaks will be the first area of interest, while the lower breaks are likely to expand losses at 0.8400-0.8450. The recovery could bring EUR/GBP back to 0.8750 if the crossing took a convincing break above. However, if the trend remains below 0.8850, the recovery is likely to represent an attractive level for resale.
EUR/GBP daily chart