Hello, I'm Ashraf Laidi, from CMC Markets, and welcome to this edition of CantosCharts.

We are going to cover the sterling today, the British pound. And we're going to start with a chart that you may not have seen often here, and this is basically the chart that shows the extent of net long or net shorts in the British pound against the US dollar in the Chicago Mercantile Exchange, in the CME, in the IMM part of the CME, which is the International Monetary Market.

Now, the yellow graph here, it basically shows sterling versus the dollar, okay? And the scale is right there. It's the right-hand scale. The blue, it shows the number of contracts in which people are either net long sterling or net short sterling.

So, if this number here - it's blue - it is around 60,000. That means that there are about 60,000 more short sterling positions than long. Hence, it's called a net - net long.

And obviously when it is below zero, when it's - this blue graph - is below the line of origin here, it means that it's net short. If it's above, it means that it's net long.

And, of course, there is no surprise that sterling has a fairly positive relationship with the net long or net short. When it goes up, there are people more net long than net short.

Now, you'll all know about this. You probably also know, when you were cautioned by the experts, that this thing should be - or could be - a contrarian indicator, meaning when there are a lot of net shorts that is the time probably to buy the sterling.

But we're not going to play that game. We're not going to say we're going to be contrarian for the sake of contrarian. We don't do this here.

This is how we're going to look at this. In October of 2009, you saw a fresh record, a new record of net shorts in sterling versus the dollar over 65,000 contracts. Okay?

So we hit this low. It was bad for sterling, there were so many more net shorts - more shorts than longs. Around 65,000 of them. And then we went into November and December, and the shorts fell, and actually the shorts went down. So I'm not going to be describing the obvious here. We're going to get to the point.

So, what happened here is that as this new wave of selling in the British pound after February started, and after late January, the net shorts started, and here we are here. The net shorts, as of the week - the last week of record, which is the week ending in the middle of February the 26th - the net shorts were around 62,284 contracts, close to the 65,000 record that we hit in October.

What are we getting here? What we are getting here is that even though the net shorts are this close to around 2,000 contracts close to retesting their all-time high - that is a high in the shorts, therefore net short is the low - even though they are retesting the highs, the British pound, it is at 149, which is as much as 10 per cent above the 24-year lows that we saw in January of 2009. And that low went 135.

In simple English, what we're saying is that the net shorts are already near the all-time highs, but that sterling has more downside to go.

What could that mean? That could mean that we could see fresh opening of fresh shorts, net shorts, in the British pound.

I want to take you back to the past on something that we warned CMC clients, and I warned here people on ashrafaidi.com, and I'm going to show you something that we gave you the heads-up. I'll show it to you.

Now, this chart is not as clear as the previous one, but we're going to describe it. This is sterling net contract (it's the same chart as that one, but around two months before). And it shows you what? We did something here. If you remember, the media - the Financial Times, the Wall Street Journal, all the newspaper - were full with headlines that the record shorts in the euro, they hit an all-time high. Okay? Net shorts in the euro - this is the euro - versus the dollar; they hit an all-time high.

But look where the net shorts in sterling were. There were nowhere near the highs. The net shorts in sterling were around, I believe, a 24,000 or a 25,000 contract net shorts.

Basically, the bottom line of this chart that we showed people was that there were more sterling shorts ahead, because this thing called sterling has time to catch up with the euro. If this thing did badly, the euro and the net shorts went up, it would have to be the same thing here with the sterling, and effectively, we showed you, the net shorts went around 62,000, from 20,000.

So let's get to the meat of it, and get to the price. So, basically, this is a monthly chart - not a weekly, not a daily, not a five-minute. It's a monthly chart of the British pound versus the US dollar. What does this show you? It shows you that the 1.7 level either served as a resistance or as a support, depending on the cyclicals in the UK. But never mind this.

Last week, we gave a big alert. We showed that the GILT that the technical chart, the chart, the candle, the weekly candle on the 10-year gilt in the United Kingdom, it showed you this candle here, which is called a bearish, engulfing pattern on the weekly chart. And this we issued last week as a big alert that the following week sterling could go to as low as 148. And lo and behold, we hit 147.80. We fell 500 pips over the weekend. And afterward, basically this shows that outside down week - it's another way of saying it's bearish, engulfing pattern - a negative stochastic. You have the negative stochastics here. All of these are showing that the 10-year yield in the UK could go down towards 3.45 or 3.48 from the current 3.99. And as this falls, because maybe the Bank of England may be forced to have fresh quantitative easing, this thing called the sterling could likely go re-test and go towards 146. But the key level to watch is around 143, which is a 76 per cent retracement of this move.

Ladies and gentlemen, this is Ashraf Laidi, from CMC Markets. We hope you enjoyed this edition of CantosCharts. Thank you.