It’s been a slow start to the new trading week in the markets, with the FTSE 100 pretty much flat and the Pound little changed from Friday’s closing levels. Even the cryptocurrency space, which is typically associated with extreme levels of volatility, is experiencing fairly subdued trade with Bitcoin edging a little higher after a substantial decline on Sunday.
GBPUSD remains near 1.40
Sterling ended Friday at its highest weekly closing level against the US dollar since before the Brexit vote, as the recovery which began just over a year ago continues with the majority of the losses now recouped. The latest move higher has been more thanks to weakness in the Buck rather than a broad Pound appreciation, with the GBP/EUR rate for instance, remaining around the middle of its trading range range seen over the past couple of months. Economic data from the UK has become less supportive of further upside with last week’s CPI and retail sales releases both declining. In the coming days the latest employment and GDP figures will be announced and a further softening here may see a pullback ahead for the pound.
GBP positioning hits 3 ½ year high
The most recent positioning data for the markets has shown the level of speculative net longs in GBP rise once more, leaving them at a 3 and a half year high. The CoT report is widely seen as the most accurate indicator of market positioning and with Sterling longs hitting 26,204 lots there is a growing suggestion that the trade is becoming crowded. Extreme levels of positioning leave markets predisposed to sharp snapbacks should the crowd quickly shift their stance and with the the ongoing possibility of adverse Brexit developments presenting a large negative catalyst, the chances of a sharp move lower appear far higher than a rapid rise. Having said that, hedge funds have a fairly good record (according to COT positioning) of being on the right side of the market (they were net short for practically all of 2016) and with the GBPUSD rate remaining in a fairly strong uptrend there could well be a continued steady grind higher in the absence of any reversal catalysts.