Lee Hardman, Currency Analyst at MUFG, notes that the pound got caught up in a big position squeeze yesterday which resulted in cable rising sharply by around 3%.
“The combination of President elect Trump’s negative US dollar comments and failure for UK PM May’s speech yesterday to trigger another sell off for the pound triggered a squeeze of elevated short cable positioning. It lifted cable towards resistance from its 55-day moving average at just above the 1.2400- level. Cable will now find it more challenging to extend its rebound further having failed to sustain gains above its 55-day moving average since prior to the Brexit referendum in June of last year.”
“PM May’s speech should help to dampen “hard” Brexit fears in the near-term. It is an ambitious plan which seeks to ease the adjustment through a transitional phase into a comprehensive free trade agreement and customs agreement. It will likely be difficult to achieve all those objectives but the plan does at least provide some clarity and reassurance in the near-term helping to ease downside risks for the pound. The cleaner and more realistic Brexit plan may also help negotiations to run more smoothly with the EU and avoid a more disruptive Brexit adjustment. We see more scope for the pound to rebound further against the euro than the US dollar in the coming months.”
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