GBP/USD nudging 1.52 and EUR/GBP dipping below 0.90 proved too tempting for nervous sterling longs who have taken some profit off the table Monday morning. GBP/USD drops from 1.5196 to 1.5114 while EUR/GBP rises from 0.8997 to the session high of 0.9027.
The latest IMM positioning data for the period Feb. 23 to March 2 shows intensified pressure on sterling, with short positions being extended from already crowded levels, says Danske Bank. Net short GBP positions now stand at 52% of open interest, leaving GBP/USD in particular at risk from a potential position squeeze which could push the pair sharply higher. However, while risks from positioning are skewed to the upside, Danske reminds that even very crowded positioning can prove quite long lived. GBP/USD now trades at 1.5140.
With bullish daily momentum divergences in GBP/USD and daily momentum oscillators rolling bearish in EUR/GBP the odds favor near-term outperformance for sterling says Barclays Capital. For GBP/USD a move above 1.52 clears the way toward 1.5350 and potentially 1.5560, while EUR/GBP below 0.8950 opens risk toward the 0.8850-30 area says the bank. EUR/GBP now trades at 0.9012, GBP/USD at 1.5147.
EUR/USD has been trading in a corrective pattern over the last two weeks, with the RSI pointing higher, but that signal is being neutralized by sideways consolidation, says Commerzbank's Karen Jones. Allow for more upside stabs, but expect these to be shallow, says Jones, with resistance peg at 1.3750 and a top likely between 1.33845-75 where double Fibonacci retracement targets and the short-term downtrend line appear. For a strategy Jones favors selling rallies to 1.3750, adding at 1.3840, with a stop at 1.3875, looking for 1.3405 and 1.2930 on the downside. EUR/USD now at 1.3665.
USD is generally lower as French president Sarkozy's weekend reassurances about a Greek bail-out helped to lift market sentiment. The market's mood was already improved by strong payrolls data from the US Friday, as well as Japan's current account surplus coming in larger than expected. As the EUR bounced, so did the GBP, helped by new polls showing the Conservatives had widened their lead over Labour. USD is down a little at Y90.26 while EUR is up at $1.3671. GBP is up at $1.5194.
Friday's better-than-expected payrolls, together with new liquidity measures in Japan to combat deflationary pressures has put a bid under pro-risk strategies, and spark back into JPY-led carry trades, says Lloyds Banking Group. Says there is now a bullish set-up for risk assets and commodities, signalled by the FTSE 100 moving above 5600 and oil above $81/bbl. Favors long AUD, CAD and SEK vs JPY strategies.
