GBP: Negative Markets Bias May Provide Asymmetric Risks Around UK Data Ahead
Feb-12 09:35
GBP/USD's strong rally off yesterday's lows means the pair has now retraced over 50% of the post-BoE decision losses, putting the price within 100 pips of last week's highs.
- This signals that markets are taking Mann's views at face value this week - and that her vote for 50bps last week isn't the beginning of series of votes for aggressive easing given her preference for restrictive policy (we gauge bank rate as being ~100bps above her top estimate of neutral, therefore leaving little room for sizeable cuts).
- More broadly, the negative bias toward GBP/USD persists. Our CFTC positioning dashboard has GBP's 52w Z-score at -1.52, signalling positioning momentum is the second most-negative in G10 after NZD. This is reflected in the bias toward downside protection in GBP/USD this year: the shift lower for 3m risk reversals in January has largely stuck, mirrored in demand for OTM puts - we've tracked near $3bln cumulative notional traded across 1.22 puts in the past month, again cementing the market's concern over GBP downside risks.
- It's these factors that may provide asymmetric upside risks to GBP on strong data releases ahead - particularly data covering consumption, a driver of the weak demand that helped trigger Mann's vote for 50bps last week. Prelim Q4 GDP data crosses tomorrow morning.
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USD: The EUR and the Pound are breaking through their support
Jan-13 09:34
- Watch the EUR and the Pound, both falling through new lows, but the Dollar is seeing a broader bid, Risk Off tone and Elevated Yield have been supportive of the Greenback, and also a continutaion since Friday's data.
- EURUSD is through the initial 1.0201 61.8% of the Sep ‘22 - Jul ‘23 bull leg, further momentum opens to 1.0138 1.764 proj of the Sep 25 - Oct 23 - Nov 5 price swing
- Cable sees 1.2087 0.764 proj of the Sep 26 - Nov 22 - Dec 6 price swing next.
CROSS ASSET: Bid In Energy Prices Factors Into Bond Weakness
Jan-13 09:31
WTI & Brent have registered the highest levels seen since August, factoring into the weakness in core global FI markets.
- Next resistance of note in WTI located at $79.59, while resistance in Brent is seen at $83.79.
- Our commodities team continues to point to the deepening of U.S. sanctions against Russia as the major bullish factor for crude oil, although Platts have noted that sanctioned barrels still seem to find a way to market.
- Demand for Middle East crude is also noted, as judged by benchmark premiums paid.
- The bid in European natural gas prices will also be having a hawkish impact on EUR STIRs, factoring into EGB weakness.
US: SFR Put Spread seller
Jan-13 09:24
SFRU5 95.62/95.50ps sold at 3.5 in 9k.
