GBP/USD's downtrend has paused since it hit 1.2080 last Thursday, the lowest since January 2017, meaning the growing short position is at risk of a squeeze higher because stops associated with them may be triggered.
In the week ended July 30, the futures market was short an equivalent GBP/USD cash position of 5.6 billion pounds, the biggest short since April 2017, IMM data showed.
Refinitiv matching flow data since July 30 shows those shorts may have been added to, increasing the vulnerability of the upside.
There is a chance that a squeeze higher could overshoot close to the 1.2387 Fibonacci level, a 23.6% retrace of the 1.3380 to 1.2080 2019 decline.
FX traders looking for a sustained GBP/USD recovery should be mindful that the pound normally sinks in August, however, and the installation of Boris Johnson as Britain's new PM is likely to compound that negative structural bias .
The risk of a no-deal Brexit in October has surged in recent weeks under Johnson, hammering the pound in the process nL8N2521TL.