A1 Trading

Smart Money Likes GBP, Here's Why

June 26, 2023
Frank Cabibi

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.

The EdgeFinder

All-in-one Fundamental Dashboard

30 Days Access

Free Telegram

Join for daily analysis and trade setups!

Join Telegram

DISCLAIMER: All comments made by TraderNick’s Forex Group, LLC are for educational and informational purposes only. All comments should not be construed as investment advice regarding the purchase or sale of any securities or financial instrument of any kind. Please consult with your financial adviser before making an investment decision regarding any securities or financial instruments mentioned by TraderNick’s Forex Group, LLC. TraderNick’s Forex Group, LLC assumes no responsibility for your trading and investment results. All information on any of the platforms utilized by TraderNick’s Forex Group, LLC was obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. TraderNick’s Forex Group, LLC, its employees, representatives, and affiliated individuals may have a position or effect transactions in the securities and financial instruments herein and or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies. Trading of any type involves very high risk and may not be suitable for all investors. TraderNick’s Forex Group, LLC, its subsidiaries and all affiliated individuals assume no responsibility for your trading and investment result. Read our full disclaimer here

A1 Trading Company

A1 Trading is a leading financial analysis and trading education company dedicated to empowering traders of all levels. Our team combines extensive market knowledge with cutting-edge technology to provide valuable insights and tools for traders worldwide.
2024 All Rights Reserved | A1 Trading Company
There is a significant degree of risk involved in trading securities. With respect to foreign exchange trading, there is considerable risk exposure, including but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or currency pair. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you can afford to take the high risk of losing your money.
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram