BNPP say any further short covering in the pound may bring attractive levels to short

BNPP see the Fed hiking in Sep and the BOE cutting in Nov. They also see that the recent run of better UK data has seen many in the market scaling back shorts. Even so they say that the data going forward will be "less robust", and that the BOE will cut by 15bp in Nov.

The shift in BOE rate cut expectations has driven short positions to cut back and their positioning analysis shows that there are now only modest GBP shorts;

"Market positioning has adjusted to reflect the shift in rate hike expectations for the BOE and the Fed, with cable short positioning recovering sharply from an extreme short position in July to only a modestly short position now. The short covering process could have further to run in the near term, but the lightening of positions should ultimately create opportunities for shorts. Short GBPUSD is likely to be an attractive trade again as we move into autumn."

BNPP positioning analysis tells a slightly different story to the futures positioning, which on Friday showed that GBPUSD shorts had covered 2k to leave an overall short of -90k.

CFTC GBP short positioning

That's not to say they're wrong but the price action has shown that the pound still has a lot of work to do to even claw back a decent chunk of the Brexit drop, and that keeps shorts firmly in the game. BNPP say shorting in the Autumn could be the trade but I think a surprise Sep hike from the Fed may be a great dip buying opportunity to run into that Autumn period.

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