FxWirePro: GBP/USD awaits EU judgement with bearish bias

GBP/USD continues its consolidation,

• GBP/USD moved higher to break the downtrend line today that has been in place since the second week of March when the pair topped around 1.34 area. The attempt came on the back of a report that German Chancellor Angela Merkel was ready to compromise on Irish border mechanism, popularly known as ‘Irish-backstop’ to transfer goods by agreeing to a maximum five-year limit on the backstop, in a hope that it might smoothen the agreement through the UK parliament and gain approval of Northern Ireland’s Democratic Unionist Party (DUP) that has been the key coalition partner of Prime Minister Theresa May’s government and vehemently opposed to the backstop.
• However, the rally got halted around 1.3125 area and GBP/USD is comfortably moving lower to test support around 1.3 area.
• However, a major break is unlikely with EU council meeting on Brexit looming tomorrow, where EU ministers to decide on the path forward in Brexit and to whether approve another long-term extension to Brexit deadline.
• EU is likely to extend the deadline but that is unlikely to be unconditional.

Retail sentiment adds bearish bias to the pound,

• The sentiment reports from IG Markets, which is a UK-based company providing trading in financial derivatives such as contracts for difference and financial spread betting, points to a bearish bias in the pound.
• IG markets’ retail positions data provide a glimpse to retail traders’ positions, which are largely used a contrarian indicator since retail positioning moves in opposite direction to market movements.

As of today, according to data from IG markets, 73 percent of retail positions are bullish on GBP/USD, while 27 percent are on the short side, giving bearish bias to GBP/USD.