From the FXWW Chatroom – Into a muddled week for the USD (Jackson Hole, US-China trade discussions and tariff impositions), we elect for a RV trade in FX.
Tough week for GBP: We see two factors that mean GBP should struggle to rally this week.
1. No deal noise: On Thursday the UK government expected to publish “no deal” advice alongside a speech from UK Brexit Secretary Raab in Westminster. Given the topic, this is likely to be viewed at best as neutral, softening the blow for the harshest Brexit scenario, and at worst negative for GBP, perhaps viewed by the market as a signal that “no deal” has a growing probability.
2. Leave campaign noise may rise: UK press are reporting two of the highest profile domestic proponents of the Leave decision, Nigel Farage and Boris Johnson, may be increasing their campaigning soon. The BBC report Farage is set to go “on the road” to campaign against PM May’s current Brexit plans and there have been media indications that Johnson is being urged by allies to lead another pro-Brexit nationwide bus tour.
NOK looks attractive at these levels: We see room for NOK to move higher in the coming weeks as the market realises the Norges are effectively the third most hawkish central bank in G10. FX has sold off in recent weeks despite hike pricing for Norges unchanged, suggesting scope for a bounce should the factors which have contributed to this divergence, such as lower risk appetite, reverse. The meeting last week was positive – short term CPI and GDP forecasts moved higher, TWI NOK below their expectations and “gradual” removed from the description of rate rises.
Positioning: In the CitiFX Global Flows, the spread of GBP – NOK flow from both investor segments is above the 80% YTD, with GBP buying flows outstripping that of NOK (Figure 1). For GBP, Real Money flows have diverged from Leveraged but have a tendency to follow when the spread between the two becomes large.
View the latest market information in the FXWW Chatroom with a free trial.