Our long sterling trade back in August last year ended prematurely, with only minimal gains as China spooked the market with yuan devaluation towards end of the month. Sterling reached as high as around $1.5820 on August 25 as markets digested the so called "one-time adjustment", before plummetting more than 20 US cents per pound in about 26 weeks; as the repercussion implied that there will be no UK rate hike in 2016 as previously expected.
Demand for sterling further worsened as Federal Reserve decided to hike its rate for the first time since the financial crisis, hence spelling out a divergence of policy between the two countries. To top it all, UK membership in the European Union is now in question, and an exit could mean a threat of 5% to UK's GDP.
Looking at the futures market, in the recent CoT report, speculators have increased their net short by about 18%.
On the institutional side, of the 44 institutions surveyed, to the upper side, 2 are bullish, projecting as high as $1.5 for every pound - BBVA (MC:BBVA) bank of the US and DNB bank of Norway; while to the downside we see as low as $1.37 from Julius Baer bank of Switzerland, SEB bank of Sweden and BOFAML of the US. All in the next three months. Halal Traders are with the bears this time, looking forward to deploying our trend strategy.