(from our Weekly report of 4th April 2017)
GBPUSD remains range bound, with the triggering of Article 50 last week widely expected
by the market. Since the Brexit vote, speculative positioning on GBP has been persistently
very bearish; however, the latest Commitment of Traders report shows that GBPUSD is now the most extreme speculative short (as a percentage of open interest) out of all the major futures contracts we track (next chart – click on images to enlarge).
This makes GBPUSD vulnerable to a short-squeeze given very strong seasonality effects
observed in April for the past 20 years (bottom chart), with GBPUSD rising 1.3% on average in this month (April coincides with the start of the fiscal year in the UK). Even in years when GBPUSD had already rallied in March, as was the case this year, the seasonality effect is still very strong. GBPUSD rallied 7 out of 10 times when GBPUSD already rose in March. A tactical long in GBPUSD offers great risk-reward into April.