What a month. Whereas we have now held a defensive bias in latest quarters (by way of JPY longs), Q3’s two main stress factors – fears of a no-
What a month. Whereas we have now held a defensive bias in latest quarters (by way of JPY longs), Q3’s two main stress factors – fears of a no-deal Brexit and an escalating Sino-US trade war – seem to have eased over these previous two weeks. Whereas nonetheless early days, we predict this presents some alternatives within the FX markets. We take these in flip.
Fears of a no-deal Brexit and an escalating Sino-US commerce warfare seem to have eased
First, the continuing Brexit bruising has been sufficient to provide anybody a nosebleed. However final week, the UK and the EU lastly managed to succeed in a new deal on the EU summit of 17-18 October. This has propelled sterling crosses considerably larger, with GBPUSD up by 5% on a month-to-date foundation and EURGBP decrease by round 3%.
As of the time of writing, the House of Commons has not but authorized the deal. Nevertheless, plenty of safeguards put in place to keep away from the UK crashing out of the EU counsel that the chance of a no-deal Brexit is fading. As mentioned in our Funding Committee Replace, this has shifted us to a extra optimistic view on the GBP: certainly, the pricing out of the “no-deal” Brexit premium alongside GBP’s important undervaluation recommended to us that the risk-reward was in favour of sterling appreciation. We keep this view and search for a gradual GBPUSD appreciation in direction of 1.35 with the chance skewed…