GBP/USD rallies have been undermined by lack of detail on apparent good news about Brexit, but the speed of rallies and a bid tone after the news send a strong warning to those short.
Talk by the EU's Michel Barnier of close ties triggered a GBP/USD rally from 1.2865 to 1.3043 in 24 hours.
More recently, it leapt 1.2830-1.2983 in minutes after reports that both Germany and the UK were prepared to drop Brexit demands.
Not enough detail followed in either case to spark a real short squeeze, but with shorts the largest since May 2017 at GBP 4.8 billion the risk of a squeeze is clearly high.
By comparison, the largest short position since the Brexit referendum is 6.5 billion and GBP/USD rallied 1.2110 to 1.3659 when those were unwound.
If GBP/USD closes over the 100-WMA at 1.3073 and 55-DMA 1.3031, it may quickly reach 1.3317, which is a 38.2 percent retracement of the drop from 1.4377 and in time maybe 50/61.8 percent of that move at 1.3520-1.3722.