CySEC broker FXTM today shared some interesting market observations from its trading room. At this point, 95% of the company’s customers have short positions on the GBP/USD due to the expected launch of Article 50 (29 March), which will officially begin two-year negotiations on Brexit.
Sell-off on pound at record levels
“Since the June referendum on leaving the European Union, the sentiment against GBP has remained at negative levels for most of the time – movements within the last few weeks are unpredictable. While the strengthening of the GBP was triggered primarily by depreciation of dollar, the overwhelming majority of market participants have a negative outlook on the future of the GBP/USD in the medium term, taking into account the upside correction to around 1.25-1.26”, says Jameel Ahmad, vice president of market research in FXTM.
Opinions on sterling resistance are mixed. Some analysts treat current movements as another wave of correction, while others find themselves in a more permanent appreciation. Sam Ahmad, however, is of the opinion that long positions on the GBP/USD may be risky until the pair returns to 1.32. The level represents the historic lows that have been reached at the night of the European referendum and will most likely be used by investors as a key milestones to cut off from the bear’s sentiment.
Uncertainty and fear reign on GBP
One of the main driving forces for the depreciation of the pound in the second half of 2016 is the uncertainty regarding Brexit. Leaving the UK structures of the EU is first such movement in history, so it is not known what to expect after a two-year negotiation period beginning on 29 March after the launch of Article 50.
Adding to this the upcoming elections in Germany and France, and the rise in the popularity of the right-wing political movements in Old Europe, they certainly do not diminish uncertainty. Investors choose currency that is safer in their opinion, focusing on CHF and JPY.
Taking into consideration the above fears, it is hard to predict that the pound will soon reach the June pre-referendum levels. On the other hand, we can not forget the market argument that most are usually wrong. However, 95% can all customers selling GBP/USD be really wrong?
What is your opinion? Is short term medium term on GBP/USD the only right direction?
