Cable has rallied to 1.2655 from 1.2206 yesterday on signs and hopes for a Brexit deal. That 450 pip, 3.75% rally is the largest two-day gain since the financial crisis.

The huge rally reflects two dynamics:

With Conservatives polling in majority territory, there probably wasn’t any benefit to forcing a UK election. That would just lead to fresh negotiations with an emboldened Conservative party and a real chance of a no-deal Brexit. That would have also given the EU worries about stoking exit parties elsewhere.

So they came to the table and leaned on Ireland to get something done. We’re still far from the finish line and Parliament remains a significant hurdle but there is a real chance of a deal. Morgan Stanley moved it up to 55% from 35% today.

The latest CFTC data is due shortly but last week’s report showed a net short of 77,000 futures contracts among speculators. That’s a very large position that’s been in place for a long time. It’s possibly a hedge but undoubtedly predicated on the risks around a no-deal Brexit and/or continued uncertainty. Today’s rally puts GBP/USD at the highest since June 26. Everyone who has sold since then is now underwater and the speed of the move will surely have caused significant pain.

Positioning is stretched here in the short term and fundamentals will continue to dominate. Barring any news on Monday, I could see some jitters and a slip back to 1.2600 and the Sept highs but that looks like a good spot to buy. However I’d caution that everything is subject to change based on any leak and headline and the weekend is a big risk that’s suddenly a two-way risk.