Rabobank - "We would argue that diversification is still a theme for the FX market this year.  However, we would also argue that the drivers of diversification have altered. In recent months investors have primarily been seeking out yield, the need to diversify from the EUR has diminished along with the perceived risk of an EMU breakup. GBP gained ground vs. the EUR in the first half of last year on the back of the market’s concerns over the future on EMU. CFTC data show that not only have investors rapidly reversed their EUR short positions in recent months but are again taking modest EUR long positions.  This change in the perceived future for the EUR has reduced interest in sterling and thus left the pound fully exposed to its poor and arguably worsening fundamental backdrop.  Without EUR diversification demand sterling is likely to be more sensitive to poor UK economic data. We expect EUR/GBP to be bias higher towards the 0.8500 area. The 2012 high of 0.8506 is likely to offer some resistance ahead of the 200 week sma at 0.8533.
While our weak USD view cushions our expectations for cable, we expect cable to track lower towards GBP/USD 1.5600 on a 3 mth view. "