Market positioning will be an extremely important factor over the next week with month-end and quarter-end positioning flows having an important market impact across all asset classes. There is a strong probability of a sharp increase in volatility during the week.
Sterling is often vulnerable to selling pressure late in the month as European central banks need to sell Sterling and buy Euros to cover commercial transactions.
The potential volatility in Sterling is likely to be enhanced by the triggering of Article 50, which is scheduled to take place on March 29th. Inevitably, there will be choppy trading conditions surrounding the UK currency over the week.
The UK fiscal year also ends in the first week of April, which could trigger volatile flows and add to choppy trading conditions.
Looking at the latest currency positioning data, the overall long, non-commercial dollar positions increased to the highest level since late January. With an increase in long positions and the US currency unable to make significant headway, there will be the risk of a net reduction in long dollar positions in the week ahead.
The biggest weekly shift was in the Canadian dollar, with investors now notably short compared with a net long position last week.