We are heavily bearish of the GBP and have written several articles recently on it and the GBP has fallen back a little but we now expect it to fall back a lot...
Read more: GBP/USD Forecast Analysis Falls Back from Resistance – Down Move to Accelerate?
We are bullish of the CAD in the crosses and we covered GBP/CAD in an article yesterday and in this article we will look at EUR/CAD which offers an extremely good risk to reward.
Read more: EUR/CAD Analysis and Forecast – Looking for a Trend Reversal
In terms of AUD strength and weakness a commodity to look at is Iron ore which is Australia's biggest export – AUD/USD is trending lower and while it's oversold in the short-term bounces looks like selling opportunities – the Outlook for Iron ore and AUD/USD below...
Read more: AUD/USD Iron Ore Price Drop and China to Weigh on the Aussie
The best-performing major overall in 2024 is the GBP having seen significant upside on the USD and of course in many crosses but speculators are heavily long we have a bullish extreme and expect a trend reversal to the downside.
The three pairs we will look at in this article are GBP/USD, GBP/CAD, and GBP/CHF which we have covered in recent articles – we have been looking for a downturn and now think it will unfold.
GBP Speculative Positioning at an Extreme
The strength in the GBP has been based around the market pushing back against a rate cut in August and only seeing two cuts this year – as we have discussed in previous articles this outlook is unlikely to get better and speculators have a record net long position which warns of a downturn:
GBP/USD Forecast
“GBP net long positions increased for the third consecutive week, in dramatic fashion, driven by an increase in long positions. GBP longs are at record levels at 0.183M contracts. GBP has retained its position as the best performing G10 currency year-to-date following the UK July 4 election.” (RABOBANK) It has performed well but speculative positioning points to a downturn which we can see on the chart below.
The data above is from the COT Net Traders Positions and we will look for speculative positions against commercials who tend to be right at major trend reversals – When speculators are positioned heavily long or short and commercials oppose them we will look for a potential trend change. Technical levels to look out for in GBP/USD are below.
Crosses GBP is at an Overbought Extreme...
We know we have a bullish extreme in the GBP in terms of speculative longs and in terms of the crosses, we want to look at traders to be positioned heavily short other majors with commercials heavily long - by looking at the positioning in the majors v the USD we can work out crosses where the GBP is a bullish extreme and two low-risk high-profit potential setups are below.
GBP/CAD Forecast
In terms of the GBP it's moved up on the CAD on the view the next Bank of Canada meeting could see a cut in interest rates and also the CAD is heavily correlated with the USD and recent USD weakness has weighed on the CAD.
In terms of speculative positioning, we know from GBP/USD that speculators are heavily long the USD – In terms of the CAD they are heavily short while commercials are heavily long which makes the cross a bullish extreme. Technical levels to look out for in GBP/CAD are below.
GBP/CHF Forecast
The CHF is a low-yielding currency offering just 1.25% as a yield which is the worst outside of the JPY while the GBP offers 5.25% which has seen a large amount of traders sell the CHF and buy the GBP. Speculators are heavily short of the CHF while commercials are heavily long. Technical levels to look out for in GBP/CHF are below.
In our last article we were looking for a turndown in GBP/CHF from resistance and we have seen some weakness and expect more to come.
The USD recently had a correction on the SEK but that now looks to have ended and we are looking for a far stronger USD interest rate differentials going forward are in favor of the USD and likely to widen which is USD supportive.
After a sharp sell-off to the downside the DXY is now moving to the upside and we expect far more strength ahead...
Read more: DXY Analysis and Forecast – US Dollar Index Going Up
We did an article last week in terms of selling GBP/CAD but it hasnt corrected and has continued to the upside but the odds of a break lower are high now in our view, logic of the trade below...
Read more: GBP/CAD Analysis Outlook - Overbought Extreme and Going Down
The GBP has been in a big uptrend and we now think the uptrend is exhausted and we will see a significant correction to the downside. The logic of the trade and the key levels of support and resistance to look out for are outlined below...
You can read our previous article on the GBP yesterday for more info on sentiment and recent data CLICK HERE
Uk Wage Data
“Hopes that the Bank of England might be able to start cutting interest rates in August received a slight boost after new figures showed that wage growth eased in line with expectations.” (CITY AM)
Coming into the data the market sees no cut in August and only one cut this year – while we may not get an August cut we expect the Bank of England to cut at least twice - In terms of, annual pay growth excluding bonuses averaged 5.7 per cent between March and May, down from 6.0 percent last month and in line market forecasts. Including bonuses, annual wages rose at 5.7 percent, again as expected. This was down from 5.9 percent for the previous month.
“A modest slowing in pay growth offers some good news for those looking for a rate cut in August, but with annual pay growth excluding bonuses at 5.7 percent, the Bank of England may be unwilling to risk an August cut in rates before the labour market has cooled sufficiently,” (Yael Selfin, Chief Economist at KPMG UK.) We think the data is enough for the BoE to cut and there were other encouraging signs the labor market is cooling.
Unemployment and Job Vacancies
Unemployment was unchanged at 4.4 per cent. The joblessness rate increased from 3.8 percent at the end of last year. While unemployment remained the same, there were further indications that the labor market is slowing, the number of job vacancies in the UK fell by 30,000 between April and June which is the 24th consecutive quarter they have decreased.
Sentiment at a Bullish Extreme
Speculators have built up a record-long position, which we have noted in previous articles. Speculators have built up a record long based upon a hawkish Bank Of England but also a dovish Fed with the market looking for 3 cuts this year but will they get them? We don't think so …
Interest Rate Differentials UK V US
We have the elections coming up that could change expectations according to a recent interview, if Trump wins the November election, he will...”Enforce huge bilateral sanctions even though he claims “I don’t love sanctions,” he says. He keeps circling back to William McKinley, who he says raised enough revenue through tariffs during his turn-of-the-20th-century presidency to avoid instituting a federal income tax yet never got the appropriate credit...will lower the corporate tax rate to as low as 15%.” (ZERO HEDGE)
The above and other policy proposals look likely to increase inflationary pressure inflation, ok the Fed could cut in September but two more cuts before year-end look excessive if Trump does enter the White House which is a high probability in our view. While we think a September cut is likely its by no means guaranteed with the election backdrop. The impact of a Trump win should underpin bond yields and temper rate-cut expectations.
Technical Analysis
We are already short and the key levels to look out for are below – If you want to see our analysis on 14 pairs each day including the GBP CLICK HERE
We tend to like trading minor exotic pairs due to their high volatility and one of our favorites is USD/PLN which we looked at back on the 11/06 looking for a trend reversal to the upside and price action to us looks bullish.
Read more: USD PLN Analysis USD Trend Reversal to the Upside Being Confirmed?
In terms of our favorite major pair at present it's GBP/USD which we view as at an overbought extreme. We expect a turndown and the logic of our view as well as a round-up of the fundamentals, sentiment, and technical levels are outlined below.
