UK Commodity Futures Trading Commission data showed GBP non-commercial net positions moved to -57.8k from -64.8k in the prior reading. The shift points to a smaller net short in sterling positioning.<\/p>\n
The improvement totals 7.0k contracts compared with the previous week. Despite the rise, the overall balance remained in negative territory.<\/p>\n
We are seeing a clear shift in market sentiment as GBP non-commercial net short positions narrowed from -64.8K to -57.8K contracts. This reduction in short contracts suggests that bearish bets are unwinding, paving the way for a potential short squeeze. We advise derivative traders to closely monitor this momentum and prepare for upward pressure on the pound in the coming weeks.<\/p>\n
This shift comes at a time when the UK economy is showing surprising resilience, with recent GDP growth tracking at a steady 0.3% quarter-on-quarter. Meanwhile, the Bank of England is facing sticky core inflation, which remained at 3.5% in the latest July readings. We expect this persistent inflation to keep UK interest rates higher for longer compared to other major economies, giving the pound a strong fundamental backstop. <\/p>\n
For derivative traders, we recommend buying GBP\/USD call options with a strike price slightly out of the money to capitalize on this upward momentum. Historically, similar short-covering phases, like the one in late 2023 when net shorts dropped rapidly, led to a 4% rally in the pound over the following month. Positioning for a move toward the 1.3100 level in the spot market seems like a highly viable strategy right now.<\/p>\n
We also believe the EUR\/GBP pair offers an attractive opportunity, where shorting the Euro against the stronger Pound provides a favorable risk-reward profile. Traders should set tight stop-losses just below the recent support levels at 1.2750 for GBP\/USD to protect against sudden market reversals. Upcoming labor market data and retail sales figures later this month will be the key catalysts to watch.<\/p>\n\n\n\n