Commitment of Traders (COT) data is starting to favour the British pound, with futures positioning showing reduced net-short exposure. At the same time, GBP/USD is setting up a potential inverted head and shoulders pattern, while EUR/GBP charts suggest a bearish flag could trigger another leg lower. With Bank of England (BOE) cut expectations fading and the case for US Federal Reserve easing growing, momentum may be shifting toward sterling bulls.
View related analysis:
- GBP/USD Outlook: BOE Rate Cut Odds Fade as UK Inflation Stays Hot
- USD/JPY Outlook: US Dollar and Japanese Yen Brace for PCE Inflation
- US Dollar, Japanese Yen and VIX Futures: Weekly COT Positioning Insight
British Pound Outlook: GBP/USD and EUR/GBP in Focus
British Pound Futures (GBP/USD) Positioning: Weekly COT Report Analysis
While futures traders remain net-short the British pound, bullish clues are building within the commitment of traders (COT) data. And that was before inflation data reduced odds of imminent BOE cuts.
- Large speculators and asset managers reduced their net-short exposure to GBP/USD futures by a combined 19k contracts last week.
- Both sets of traders increased longs and trimmed shorts, with gross longs rising by 9.5k contracts and gross shorts falling by -9.5k contracts.
- Considering the case for Fed cuts is building while expectations of BOE cuts diminish, we could see further short covering for GBP/USD futures in the weeks ahead.
Chart analysis by Matt Simpson, Source: TradingView, CME Futures
GBP/USD Technical Analysis: British Pound vs US Dollar
Last week I outlined the potential for an inverted head and shoulders pattern to form on the GBP/USD daily chart. We’ve since seen a deeper pullback, with a prominent bullish engulfing candle forming perfectly at the monthly pivot point. Should prices hold above Friday’s low, a classic head and shoulders pattern could be underway.
A break above 1.3600 confirms the inverted head and shoulders pattern, which projects an upside target around 1.4050.
Prices have retraced around half of Friday’s rally, and that could increase the potential reward to risk ratio for bulls seeking a near-term move towards the H&S breakout level.
Chart analysis by Matt Simpson - data source: TradingView GBP/USD
EUR/GBP Technical Analysis: Euro vs British Pound
The euro has trended higher against the British pound for much of the year, albeit with notable volatility. A sharp correction unfolded between April and May before prices resumed higher, yet the latest price action suggests another corrective phase is underway.
A strong bearish engulfing candle printed on July 28, followed by another on August 7 at the monthly R1 pivot, which also confirmed a lower high.
More recently, a potential bear flag has emerged on the EUR/GBP daily chart, with Monday’s bearish engulfing candle hinting at renewed downside momentum.
While prices are currently retracing within Monday’s range, bears are likely watching for opportunities to fade rallies while the cross remains capped beneath the tweezer-top high at 0.8618.
Chart analysis by Matt Simpson - data source: TradingView EUR/GBP
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-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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