Obvious is Scary

The pound fell Monday after reports that Theresa May has set March 29 as the day to trigger Article 50. The New Zealand dollar was the top performer while GBP lagged. Japan is back from holiday but the Asia-Pacific calendar remains light. We also take a look at the first French Presidential debate.  

As we wrote about yesterday, the net cable short position is at the most extreme levels on record. Presumably, those are bets on a decline after Article 50. What's also notable is that in the past two weeks, the net short has nearly doubled. In that time cable has edged higher and that leaves many traders underwater.

The trade is so obviously setting up for a short squeeze that it scares us, making us think we've missed something. Goldman Sachs is out with some research saying specs tend to be right about the direction of GBP but we struggle to see it this time. There should be nothing surprising about Article 50; not only in financial markets but also on Main St. Or maybe we're overthinking it.

In any case, what we're sure of is that if a short squeeze starts after Article 50, it will get very violent, very quickly.

Turning to politics, an instant poll from Elabe showed that Macron was the most-convincing, followed by Melenchon with Le Pen tied for third. Those types of surveys tend to be flakey and with a large portion of the French electorate remains undecided though and the polls in the coming days will be market moving.

The exchanges on immigration and culture were the most heated but one of the things that was striking was how populist rhetoric is growing more refined in Europe and globally. An example was Le Pen shifting to promoting sovereignty in a move that echoed 'America First'. She said she wasn't running to be Merkel's Vice-Chancellor. That's the kind of talk that will increasingly strike a chord in a Eurozone where growth is unbalanced.

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