For the first time in 10 months, traders are now betting on gains for the British pound against its currency rivals.
According to data from the Commodity Futures Trading Commission, net positioning in the British pound turned long for the week ending April 16, with 119,630 long contracts, compared with 119,616 short contracts.
“GBP net positioning have switched to net long for the first time since June 2018 with gross longs at the highest since September 2018,” said Justin McQueen, currency analyst at DailyFX.
Much of this short squeeze had been fueled by the reduced risks of the U.K. leaving the EU without an agreement. However, with that said, gains for the pound could be limited, given that the currency is unlikely to find much relief from a potential squeeze, McQueen said.
A short squeeze refers to investors unwinding bets that an asset will fall in value. Such speculative positions also can serve as a contrarian indicator for some industry participants because a move against those bets can lead to accelerated price changes when traders attempt to cover their positions.
CFTC IMM positioning, per Daily FX
The British pound GBPUSD, +0.0155% has been a favorite of short sellers of late as uncertainty around the U.K.’s exit from the European Union continued to unfold. However, on April 9, EU leaders granted a second extension to Brexit to Oct. 31.
Read: EU leaders offer Britain a Brexit deadline extension until Halloween
Meanwhile, traders increased their bets against the Japanese yen, USDJPY, +0.00% hardly surprising given the performance of U.S. equities. The yen is a traditional haven currency that falls during periods of market strength and on Tuesday, the S&P 500 SPX, +0.88% and Nasdaq Composite COMP, +1.32% both closed at records.
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