Last Friday, GBP got a lot of attention from institutional investors. This aggressive move towards the pound is following some key events that we will cover today as it may cause strong momentum to the upside on the currency's demand.
EdgeFinder Analysis
EURGBP is sitting at a -3 sell rating despite seasonality pointing to higher moves from the euro. EUR also has a better score on the inflation side of analysis because of how it is able to get more of a handle on it. However, this may lead to more hawkish moves from the BoE.
The UK's stubborn inflation numbers hold at 8.7% from last month, and this prompted their central bank to act accordingly. By adjusting the new rate by 50 basis points instead of the expected 25, it set a precedent to investors watching bank activity and rate expectations going forward.
GBPNZD rests on a rising trend line on the 1D and 4H timeframes. The pair will need to hold this level of demand to hold its bullish bias, otherwise the market might bid more to the downside. If price can hold, we may see another move to the upside around a key triple top level of resistance.
After the UK's latest CPI and rate decision, we can determine that BoE will remain tight on policy over time. At the same time, the RBNZ does not look to be as aggressive as they once were. With the highest rate at 5.5%, New Zealand is likely looking to hit the brakes to protect the economy.
On the historical backtest feature, GBPUSD looks much less bearish than what it once was. This is partly due to the fact that Federal Reserve sentiment peaked in terms of aggressiveness. Now, it's a different story. The roles have essentially flipped between the Fed and the BoE.
GU is at a neutral rating of -1 meaning that bullish sentiment is growing by the pound. Lots of factors are involved in the EdgeFinder's sentiment on any asset, so it will never give out an exact time to be buying or selling. But it will provide the data of change over time, and its favor is gradually flipping towards the pound.
Retail Spotlight
The yen remains heavily favored on the retail side. GBPJPY and GBPAUD are extremely short biased at 83% and 85% short. Meanwhile, EURGBP is mostly favored to the long side. According to retail sentiment, traders are either mixed or short GBP.
Smart Money Spotlight
Something worth highlighting this week is the change in COT positions on GBPNZD. Not only did we see a large amount of long contracts rise from last week, but we also saw a dwindling sentiment around NZD. The bottom two charts show a better visual of what's going on week-to-week. As you can see, last week's bias shot much higher in the pound's favor.
Fundamental Spotlight
This chart might look bad on all fronts, but the UK struggles the most out of the three. Compared to Oceana - who undoubtedly suffers the consequences of QE - England can't seem to break the inflation pressure of stubborn CPI rates at such high levels. If we had to guess which central bank will be more aggressive on inflation regardless of economic contraction, the signs point to GBP's.
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Last Friday's report showed a significant change in global market sentiment from smart money. What COT signaled has turned ultra-risk-off for traders who have been hoping for Fed fears to subside. This news could spark up worries about higher interest rates for the long term. EdgeFinder Analysis GBPUSD is now a -12 on the EdgeFinder […]
