GBP Net Longs Extended, Leveraged Funds Slash their USD Shorts
The Pound has been the top performer in the last few weeks. It is buoyed by an array of several fundamentals, including the successful rollout of coronavirus vaccines and the general reduction in political risks after the Brexit kinks were ironed out. Accordingly, the GBP is trading at a three-year high versus the greenback in a bullish breakout pattern. Following gains of last week, the United States Commodity Trading Futures Commission (CFTC) data revealed that traders cut back their USD shorts versus G10 currencies.
The USD posted their strongest performance in four months following last week's resurgence, unshackling themselves from sellers' grip. Consequently, and as expected, the unwinding of USD short bets, mostly by leveraged funds, solidifies the USD's Launchpad against major currencies, including the GBP. There is a tinge of overvaluation. As such, if the GBP fails to reverse last week's losses, the resulting correction could be deeper. It will be even if the Chancellor may extend the furlough scheme and level out with the population ahead of the scheduled reopening.
Impact on the GBP:
Bearish. Like JPY and Euro traders, both smart and fast money are cutting back on USD longs despite inflation fears in the long term. A correction of the current overvaluation may unwind GBP bullish steps, paving the way for the USD to recoup losses in 2020.
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