Levels at which to monitor the long-term weakness of the dollar

Pound Sterling (GBP) Analysis.

• The UK’s PMI is in the spotlight as the risks of stagflation threaten to weigh pound
• GBP / USD The main technical levels are analyzed
• Extreme institutional positioning contradicts the mood of IG clients

Risk events for the week ahead

Tomorrow, PMI UK data will shed some light on the state of the UK economy as concerns about stagflation continue. On Wednesday we have FOMC meeting minutes, which are known to cause increased short-term volatility. On Thursday, we have a second estimate of GDP for the 1st quarter, which is unlikely to lead to major shifts, provided we see a figure similar to flash data. Finally, on Friday we have data on US PCE inflation, which is projected to yield lower data for the second month in a row.

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UK PMI data is in the spotlight

After a month-long decline in growth in March, traders and investors will closely monitor additional fingerprints of data that provide signs of future economic activity.

All PMI data except euro on recent prints but remain above the 50 mark. Tomorrow we have PMI data on manufacturing and services in the UK, which is expected to continue the downward trend. The fundamental picture for the UK certainly faces many challenges, mainly: concerns about stagflation and the long-standing problems surrounding the Northern Ireland Protocol, which regulates goods arriving in Northern Ireland and possibly the rest of the EU from the UK.

Comparative PMI data (individual major countries)

Source: TradingView, prepared Richard Snow

Basic technical analysis GBP / USD

Sterling took advantage of the softer US dollar and made some progress after printing an annual low of 1.2265 ten days ago. Last week, U.S. retail giants Walmart and Target confirmed a drastic change in consumption and spending levels as consumers tightened their belts in response to rising prices and sought cheaper alternatives where possible.

Level 1.2675 – 1.2700 resistance poses the next challenge to the bullish sequel while support comes in at 1.2400 and then 1.2250. The RSI strongly out of oversold conditions and is currently testing the midline indicator. However, the average is the true range, the measure volatilityremains elevated – opens the door to bilateral price action.

GBP /USD Daily schedule

Source: TradingView, prepared Richard Snow

The opposite of institutional and customer sentiment

Large speculators and hedge funds have remained much shorter (light blue line), but seem to have leveled off recently. A softer US dollar amid rising recession risks may require more balanced positioning in the coming weeks as the dollar continues to decline. Such an adjustment will be due to a reduction in shorts, an increase in longs, or both – which will be positive for the long-term GBP / USD shift.

The mood of IG customers remains long

GBP / USD: Show retailer data 72.91% of traders are net-long with a long and short trader ratio of 2.69 to 1.

Usually we take a a conflicting view of the mood of the crowdand the fact that traders are net-long, suggests that GBP / USD prices may continue to fall.

The number of net-long traders is 0.33% higher than yesterday, and 16.88% less than last week, while the number of traders network-short remains unchanged than yesterday and 27.41% more than last week.

Positioning is cleaner than yesterday, but less than last week. The combination of current sentiment and recent changes testifies to this “Mixed” trade bias GBP / USD.

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX