Every week I check the Commitment of Trader reports and see if there are any extremes in positioning by the commercials or non-commercials. Extremes can often lead to strong turning points, and right now the British Pound is highlighting something interesting.
The Data
The image above shows the commercial or hedgers positioning on the British Pound futures. As we can see the last four times the red line has reached their current positions, the British Pound has risen.
On the other hand, the one time that commercials reached a selling extreme, the price eventually turned and went south.
Does this suggest that the British Pound could get going again?
History says commercials being this bullish has been a reliable signal for pound strength. But this time feels trickier. Commercials are buying at extremes, and the broader macro picture (fiscal stress, political uncertainty, stagnant growth) makes it harder to get fully bullish.
Still, with data surprising to the upside and inflation refusing to roll over, there’s a case for at least a near-term GBP rebound if shorts get squeezed.
My Take
I’ve got mixed feelings here. On one hand, the data is supportive, and the CoT extremes argue for upside. On the other hand, the UK’s growth story looks fragile, and fiscal risks aren’t going away.