Recent UK data has shown signs of a sharp slowdown. On August 18, UK retail sales came in below the market’s minimum expectations and so did the UK PMI reading on August 23.

With GBP longs showing an extremely long position in the COT report, the GBP was always going to be vulnerable to bad news and this resulted in a sharp GBP sell-off on August 23. Furthermore, the slowing of the European and US PMIs brought recessionary fears back to the surface on August 23 and sent bonds surging higher once again. This move into US Treasuries sent yields lower and helped lift the JPY.

So, with markets nervous about the prospects of global growth, will we see more bond buying? With GBP longs stretched, will we see more GBP downside?

Looking at the seasonals ahead for the GBPJPY, there is a marked weakness ahead. Over the last 15 years, between September 18 and October 9, the GBPJPY has fallen 80% of the time for an average fall of 2.84%. Will that repeat again this year?

Major Trade Risks: The biggest risk here has to do with the path of US monetary policy and the UK’s economy/inflation pressures.

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