Breaking: Pound Surges Above 1.29 v Euro, 1.40 v US Dollar as Short-Squeeze Tightens

The British pound has made some hefty gains in the mid-week session despite poor data releases.

The gains against the US dollar and euro are complemented by strong moves against the Canadian dollar and South African Rand.

We are also seeing solid gains against the New Zealand dollar.

The move higher in the British pound comes in the face of two poor data releases delivered at the start of March. The reaction confirms that for sterling it is sentiment surrounding the EU referendum that still matters.

We have been warning for a number of days that the GBP was oversold on the Brexit story and that risks concerning Brexit were now balanced to both the up and downside.

“The general oversold conditions and the recent pick-up in buying interest pave the way for a rebound,“ says Yann Quelenn at Swissquote Bank.

With markets pitted heavily against sterling the chance of sharp bounces have grown as hefty short positions will need to be cleared out of the market.

This is a situation whereby a heavily sold currency moves sharply higher, forcing more sellers to close out their short positions and adding to the upward pressure on the currency.

Nevertheless, momentum remains firmly pitted against sterling in the longer-term timeframes and we believe rallies will ultimately remain short-lived.

“The long-term technical pattern is negative and favours a further decline towards the key support at 1.3503 (23/01/2009 low), as long as prices remain below the resistance at 1.5340/64,” says Quelenn.

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