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4 Feb 2013
Forex Flash: Sell EUR/GBP – Nomura
Nomura Strategist Geoffrey Kendrick believes that EUR/GBP looks like an attractive short trade ahead.
He begins by noting that so far in 2013, EUR cross price action has all been about topside momentum, s EUR risk premiums have compressed and markets have reacted positively to the LTRO payback. He writes, “For us being medium-term EUR bears (primarily on growth relativities) we have been watching this price action, and are waiting for opportunities to fade the move.”
While calling a top is difficult, he feels that Friday´s LTRO payback may provide a catalyst for profit taking and as a result, looking for crosses where the move has been extreme, he feels that his medium term view may make sense. He notes that GBP looks like one of these crosses. He notes that GBP has been sold recently on continued soft local data, fears about the 2017 EU referendum and concerns about how dovish Carney will be when he takes over as BoE Governnor in July.
However, by contrast, his structural GBP view has been based on continued inflows to buy gilts. He writes, “On that theme, little watched data from the Bank of England released last week showed non-residents bought GBP17.7bn (when we price adjust the data) of gilts in December despite the S&P negative outlook move on the UK on 13 December. Indeed, if the Bank of England data translate directly with the ONS data (translation is rarely 1:1) then Q4 would have been the strongest quarter of net buying on record.”
He finishes by adding, “This would not be surprising to us, as during the previous period of negative outlook (between the first and second lines in the chart) inflows remained strong. We sell $20mn EUR/GBP at 0.8655, target 0.8200, stop 0.8750.”
He begins by noting that so far in 2013, EUR cross price action has all been about topside momentum, s EUR risk premiums have compressed and markets have reacted positively to the LTRO payback. He writes, “For us being medium-term EUR bears (primarily on growth relativities) we have been watching this price action, and are waiting for opportunities to fade the move.”
While calling a top is difficult, he feels that Friday´s LTRO payback may provide a catalyst for profit taking and as a result, looking for crosses where the move has been extreme, he feels that his medium term view may make sense. He notes that GBP looks like one of these crosses. He notes that GBP has been sold recently on continued soft local data, fears about the 2017 EU referendum and concerns about how dovish Carney will be when he takes over as BoE Governnor in July.
However, by contrast, his structural GBP view has been based on continued inflows to buy gilts. He writes, “On that theme, little watched data from the Bank of England released last week showed non-residents bought GBP17.7bn (when we price adjust the data) of gilts in December despite the S&P negative outlook move on the UK on 13 December. Indeed, if the Bank of England data translate directly with the ONS data (translation is rarely 1:1) then Q4 would have been the strongest quarter of net buying on record.”
He finishes by adding, “This would not be surprising to us, as during the previous period of negative outlook (between the first and second lines in the chart) inflows remained strong. We sell $20mn EUR/GBP at 0.8655, target 0.8200, stop 0.8750.”