Daily Outlook: Continue Long Pound?

Macro View:

GBP: Despite cooling UK inflation, the majority of policymakers in the UK are aggressively scaling back rate cut expectations, maintaining a hawkish stance. Additionally, the latest UK budget has an overall positive impact on the GBP. However, in the long term, the macroeconomic landscape in the UK still poses challenges, despite positive manufacturing and services PMI outlooks. Markets anticipate the UK may enter a technical recession next year. In the short term, the positive movement in GBP is primarily driven by weak US data and an improvement in global risk sentiment.

USD: As inflation continues to cool down, and the labor market signals a loosening, markets anticipate the next move from the Fed to likely be a rate cut. However, in the long term, it is premature to adopt a bearish view on the USD as the Fed has not provided a clear signal for a cut, and they appear inclined to aggressively scale back market dovish expectations. In short, the current bearish sentiment on the USD is influenced by the improvement in global risk sentiment.

FX View:

DXM: Retails Sentiment

Currently, retail sentiment for GBP/USD reveals that 91% of retail traders have taken a long position, with only 9% opting for a short position. Given the historical trend where 90% of retail traders tend to incur losses in the long term, aligning with the opposite position presents a favorable confluence.

Seasonality Analysis

The seasonality analysis indicates a continued bullish trend for GBP until the year's end. Conversely, the seasonality analysis suggests a persistent bearish outlook for USD until the conclusion of the year.

Sources: PMT

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