CoT Update – GBP/USD Speculative Long Largest in Almost 4 Years

CoT Highlights:

Large speculators increase GBP long to largest since 2014
Still room to go before ‘Brexit’ debacle erased
Large speculator positioning profiles for major currencies/markets

For a measure of short-term sentiment readings, see the IG Client Sentiment page.

Friday’s CoT report showed large speculators increasing their GBP net-long to its highest level in nearly four years – today we’ll take a look at what it might mean when coupled with the technical backdrop.

Euro bullish bets were increased to a new record. Crude oil positions jumped to almost their largest positioning on record as well. The recent rise in silver was accompanied by a very large one-week net-long increase, but overall traders remain relatively flat the commodity.

Every Friday, the CFTC releases a weekly overview of traders’ positioning in the futures market as reported for the week ending on Tuesday. In the table below are key statistics for net positioning of large speculators (i.e. hedge funds, CTAs, etc.).

This group of traders are largely known to be trend-followers due to the strategies they typically employ. The direction of their position, magnitude of changes, as well as extremes are taken into consideration when analyzing what their activity could mean about future price fluctuations.

Key stats: Net position, one-week change, and where the current position stands relative to the past 52 weeks.

Large speculators increase GBP long to largest since 2014

The largest group of speculators in the futures market have collectively been neutral to bullish GBP since November on a net-position basis, but have been net-buyers (covering a previous short position) since early last year.

Recently, large specs increased their long bets to its largest size seen since July 2014. Going back even a decade, the current net-long of 47.7k contracts is one of the highest during that period. Has the group become overly bullish or amidst a profitable run in a maturing trend?

Chart 1 – GBP Positioning

Still room to go before ‘Brexit’ debacle erased

On this end, since not long after ‘Brexit’, the view has been held that at some point down the road we’ll see the large downdraft taken back, but it could indeed take a good while to do so. It will require a move to over 14800, but with the recent high near 14400 it’s very doable this year, even this quarter.

However, it’s cable, and it’s been rallying in cable-like fashion since troughing in late 2016, early 2017. That is, when it looks its best it reverses sharply, shaking out longs only to move back to new highs.

The current decline off the high looks to be another cable-like pullback within a generally constructive uptrend, and as long as the sequence of higher-highs and higher-lows remains intact (hold above 13700, preferably within the channel), then GBP/USD looks poised to continue towards fully erasing the ‘Brexit’ debacle.

See how sentiment could tie into the Quarterly Forecast for GBP