– GBP in a short squeeze; Upper House approves all 3 BoJ nominations
GBP has seen a sizeable bounce above 1.5100, which we suspect has been primarily driven by the market’s overextended short positioning. The initial excuse have been comments from outgoing BoE Governor King (UK recovery “in sight” and BoE not trying to push down Sterling). Still, our positioning analysis shows that FX investors are short GBP, but not yet at levels that could become a barrier to further GBP weakness. A strong bearish signal coming from either the UK budget or the BoE minutes (both on March 20) could provide the catalyst for further weakness in GBP. GBPUSD has already broken above the 1.5153 resistance level (noted by our technical analyst), with the 1.5218 to provide next resistance. Meanwhile, Japan’s upper house approved all three BoJ nominations (including uber-dove Iwata) as we expected. This should keep expectations of an earlier easing (as soon as Kuroda takes office on the 20th) alive, and keep the JPY heavy. However, expectations of a dovish FOMC next week could be an offsetting factor for USDJPY.
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BNP Paribas