GBP/USD vulnerable to positioning adjustments - Scotiabank

Eric Theoret, Strategist at Scotiabank, noted that they are biased to GBP weakness but highlight its vulnerability to positioning adjustments.

Key quotes

“GBP is soft, underperforming all of the G10 currencies with a decline of 0.3%, falling back to 1.32 following a struggle above 1.3250 resistance. Domestic releases have been limited, and the primary near-term risk for GBP continues to center on sentiment as we consider the record bearish record positioning according to the CFTC. Measures of implied volatility appear to be creeping higher and risk reversals hint to an exhaustion in the post-Brexit moderation in the premium for protection against GBP weakness. We are biased to GBP weakness but highlight its vulnerability to positioning adjustments.”

“GBPUSD short-term technicals: bullish-neutral—the recent GBP rally has struggled above 1.3250 and the balance of risk appears to be shifting. The break-through 1.32 may find support at 1.3180, with risk to 1.3250 and the 38.2% Fibo retracement level of the August 15-24 rally around 1.3120.”