Article 50 is coming. How to trade GBP when the headlines hit

Article 50 has hung like an anvil around the neck of the pound over the past eight months. The looming exit from the EU was an uncertainty and potential headline shock that stunted bounces in cable.

But as dismal as the bounces have been, there have been a series of higher lows since October. That's often the sign that something is trying to carve out a bottom.

On top of that, UK data has been much better than economists assumed they would be after the vote.

It's like the election of Donald Trump. It all has the feeling of something ominous but once it happens, the market can start to look ahead and see things a bit more constructively.

Two things make me believe that a short squeeze could be coming. One is the weekly CFTC positioning data. Obviously, it's not a definitive picture of market positioning but it's a good snapshot and shows a crowded short trade.

Second is the bump today. There's no great reason for it. Scotland is making more waves about another referendum. I think it's some of those shorts worried about a reversal after Article 50.

How to trade it

There's an argument for buying GBP now but I don't like that trade. Too much can go wrong. May could bungle the delivery of the announcement or someone in the EU could start a spat.

I also find it strange that May's team is being a bit cagey about when they will trigger Article 50. There were widespread reports it could come as soon as tomorrow and the government was slow to shoot them down. The latest report said nothing will be announced until at least next week.

The best course of action would be for May's team to offer as much information as possible and as much forewarning as possible. They did that by pointing to March months ago but with the month half over, now would be a good time for some additional clarity. Ideally, she will pre-announce it at least a few days ahead in order to cut down on volatility and headline shock.

With so much still unknown, the wise trade is to wait and see how the market behaves in the hours after the trigger. I expect to see some initial selling but it might only last an hour or a few minutes. If the market can base and reverse, I think the squeeze is on. The time to buy it is when the initial dip is erased and it begins to trade above the pre-Article 50 levels.