The CFTC figures, the closest proxy to changes in investor positioning, showed that speculators had a net $4.84 billion short position on the pound versus the dollar on Dec. 21 — the last date on which data was available.
Without CFTC data, banks’ internal flows may provide the clearest glimpse into position shifts and data compiled by some of the biggest institutions — BNP Paribas, Royal Bank of Canada, Bank of America Merrill Lynch, Morgan Stanley and Scotiabank — indicate pound positions have seen some big swings since the data was shut off.
Similarly, RBC Capital Markets’ quant trading team reckons that, when compared to the largest ever short sterling position versus the dollar hit in October 2016, investors are currently only short around 19 percent of that level.
“The question is how quickly sterling positioning is being rebuilt, based on potential for a second referendum, a general election or just softer Brexit,” said Claire Dissaux, Millennium’s head of global economics and strategy.
“Markets are pricing out the probability of a no-deal Brexit and that has boosted the pound in recent days and we see strong demand for the British currency below $1.2850 levels,” Kamal Sharma, BAML’s director of G10 FX strategy said.
Data from Refinitiv shows steady selling of the euro against the pound — the cleanest currency pair for those wanting to trade Brexit headlines — for most of January.
The unwinding of shorts is also reflected in option markets — investors’ favoured way for many months to protect against a weakening pound.
Sterling risk reversals — a gauge of expectations for a currency’s direction measured by comparing the relative cost of options to buy and to sell the pound show the premium on calls, or options to buy, on one-month contracts recently hit seven-month highs.
One implication of the short position snapback is that sterling may be running out of steam to appreciate without further positive news on the Brexit front – the shorter the positioning, the greater the rebound.
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