GBP/USD: Bullish signal confirmed, positions set to shift - SocGen

The research team at Societe Generale explains that Cable has breached the multi-month high of 1.2780, which also coincides with the 23.6% retracement of the down move from the June 2015 peak and is the confirmation level of a near double-bottom pattern.

Key Quotes

“This has unleashed an initial rebound that is set to reach 1.30/1.3040 and 1.3135, the upper band of the up channel that has been developing since last October’s ‘flash crash’. A key objective going forward is 1.3450/1.3505, which is the confluence of the highs of last September and July, the 2009 trough and the projected potential for the double bottom.”

“Positions set to shift

The options market is seeing a wave of unwinding of medium-term bearish puts as the 1y GBP/USD risk reversal has softened to its lowest level since end-2015. Risk reversals have led the spot positioning in the past, and the latter is still exhibiting extreme shorts. It suggests that the spot market positioning has still to catch up with option market short covering.”