Chart 1: Funds have piled into GBP with a view of higher exchange rate
Source: Short Side of Long
According to the latest CFTC commitment of traders report, hedge funds and other speculators have piled into the British Pound with an expectation of higher exchange rate. At almost 5 billion dollars of net long bets, positioning is now sitting at 2nd most bullish level in 6 and half years. Just as interesting is the fact that the currency finds itself approach $1.70 physiological as well as technical resistance (refer to chart above).
Speculative futures positioning is also confirmed by various sentiment surveys, all of which have been compiled into one tool called the Public Opinion indicator (thanks to SentimenTrader). As we can clearly see in the chart below, with the current readings of 78% bulls, bullish sentiment is now approach nose bleed levels and finds itself at the highest level in half a decade.
Chart 2: Bullish sentiment levels are now approaching nose bleed levels!
Source: SentimenTrader (edited by Short Side of Long)
Readers of the blog should also note that the British Pound has been one of the best performing currencies in the G10 complex over the last 12 months (refer to Chart 3). Furthermore, together with the Euro and the Swiss Franc, the overall European continent currencies have done much better then their counter parts.
The question now is whether the Pound can break out and keep moving higher despite speculative froth, or if we are currently seeing a intermediate peak for the British currency as it finds itself near a major resistance line? Keep a close eye out on this one!
Chart 3: Pound has been the best G10 performer over the last 12 months
Source: Short Side of Long