Pound Volatility Leveraged By Low Liquidity

[DailyFx]

Though most of the UK financial sector was closed for Monday’s Summer Bank Holiday, the British pound was more volatile than it has been in some time. In fact, the GBP/USD pair was one of the most active for the session with a sharp, 90-point drop in the early Asian session that cleanly sheared 1.85 support and in turned triggered a substantial cluster of stops.



The move clearly caught many speculative traders off guard, and encouraged a considerable number of retail participants to flip their positions just before the rebound. All of this was reflected in the DailyFX Speculative Sentiment Index which dropped from a 2.10 reading to 1.14 as long positions slipped 24 percent and shorts jumped 40 percent. So, where do we go after such a dramatic day? The UK economic docket is relatively light for Tuesday with only the BBA home loans figures for July due. However, considering the fundamental weight both housing and lending trends have over the long-term health of the economy and currency, this data may be sufficient for a good short-term reaction.