GBPUSD – Retail traders have bought into very recent British Pound weakness against the US Dollar (ticker: USDOLLAR), but GBP resilience at key support moderates our contrarian trading bias.
Trade Implications – GBPUSD: Our trend-following Momentum1 system sold the GBPUSD as our Speculative Sentiment Index showed at least 60% of our retail trader sample went long. The system typically does well in long-term trends, and the fact that the GBP is one of the worst-performing G10 currencies year-to-date would normally make us feel good about latching onto said downtrend. Yet we see clear risk that the GBPUSD remains above key support as its most recent correction leaves scope for further gains.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com