- Market could be losing interest in GBP re. Brexit

- 'No deal' would see GBP/USD fall to Sept. lows

- TD Securities set out potential targets based on market positioning

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GBP/USD spot rate at time of writing: 1.3341Bank transfer rate (indicative guide): 1.2973-1.3066FX specialist providers (indicative guide): 1.3223-1.3247More information on FX specialist rates hereResearch from TD Securities shows the likely negative impact on the value of the Pound from a 'no deal' post-Brexit trade outcome will be relatively contained, with the currency likely to retest September lows and ultimately avoid the deep losses suffered in March when the covid-19 crisis triggered significant volatility in global financial markets.

Analysts at the Canada-based global investment bank and lender have attempted to calibrate the likely downside potential in Sterling in the event of 'no deal' by observing how global investors and speculators are positioned for such an outcome.

With talks between the EU and UK likely to reach a climactic showdown between UK Prime Minister Boris Johnson and EU Commission President Ursula von der Leyen this week, analysts are scrambling to anticipate how far the Pound will travel when a conclusion is reached.

"GBP remains choppy as Brexit negotiations start yet another pivotal week. A complex positioning complicates the likely FX market reaction to fresh catalysts," says Ned Rumpeltin, European Head of FX Strategy at TD Securities in London.

TD's own in-house positioning indicator suggests to Rumpeltin that a small 'net-short position' on Sterling exists, against 'longs' elsewhere.

A short position means that there are more bets placed in the market for a downside move in a currency than there are for an upside move. A long position suggests the opposite.

Above: GBP/USD chart for 2020 showing the topside and downside targets in the event of a deal or no deal.

Therefore, a 'net short' position on Sterling suggests there are more market participants set to benefit if the Pound declines in a 'no deal' outcome than there are to gain on a positive outcome.

Rumpeltin says this view is supported by a heavy skew for puts in risk reversals and some CFTC data; "there, Leveraged Account shorts offer a partial offset to modest net-longs elsewhere."

But Asset Managers are net-long says the analyst.

A key observation is that Total Open Interest has fallen sharply with gross long/short exposures having narrowed, suggesting to TD Securities some degree of investor disengagement with Sterling in recent months.

"This may contain any position-driven flows resulting from a resolution either way," says Rumpletin, adding:

"This has us looking for a somewhat less dramatic reaction to an eventual announcement - good or bad - although we think the knee-jerk drop from a No Deal may be twice as large as from a positive result."

How foreign exchange markets place their bets for a future move in Sterling can meanwhile give an important insight into where the currency might end up in a deal or no deal situation, making the data an important forecasting tool.

TD Securities think a positive Deal outcome could see a move higher in the Pound-to-Dollar exchange rate top out ahead of 1.3660/1.3715.

'No deal' could meanwhile see the exchange rate target a test of 1.2675 before stabilising according to Rumpeltin.

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According to Richard Pace, a Reuters foreign exchange and options market analyst, the cost to protect against the Pound falling versus rising has gained in recent weeks and now trades at highs last seen after 2016's Brexit referendum.

One-month expiry GBP/USD 25 delta risk reversals are up from 0.7 GBP puts over calls in mid November, to 3.0 now.

"It shows a much greater perceived risk of GBP falling, than gaining," says Pace. "Implied volatility gauges future actual volatility over a given time, and that's higher, too. Combined with the high GBP put premium on risk reversals, it reflects a situation where implied volatility would increase further, should GBP fall."