GBP/USD: near-term risk centered on sentiment and positioning - Scotiabank

The absence of domestic releases leaves near-term risk for GBP/USD squarely centered on sentiment and positioning, said Eric Theoret, Strategist at Scotiabank, with considerable vulnerability to strength as he notes the record short CFTC positioning.

Key Quotes

“GBP is outperforming with a modest 0.3% gain, rising for a third consecutive session to levels last seen in early August. The absence of domestic releases leaves near-term risk squarely centered on sentiment and positioning, with considerable vulnerability to strength as we note the record short CFTC positioning. Options markets are quiet and risk reversals suggest a continued erosion in the premium for protection against GBP weakness.”

“GBPUSD short-term technicals: neutral—momentum signals are moderately bullish and trend indicators are muted with a trendless sub-25 ADX at 16. GBP has broken above both its short-term MA’s and appears set to test its 50 day MA (1.3327), a level that roughly coincides with the August 4 open and the 23.6% retracement of the Brexit drop. We look to resistance around 1.3320.”