Market Talk: FXWW

From the FXWW Chatroom: BNP: July CPI releases could be bullish for SEK, bearish for GBP

We head into Tuesday’s July Swedish CPI release with a EURSEK put spread recommendation in our portfolio.
Conversely, we think GBP is vulnerable to further declines ahead of UK CPI data.
Following softer than expected US headline CPI released on Friday, we are closing our long USDJPY recommendation for a 1.7% loss as the pair traded through our stop loss.

This week, the focus will likely be on CPI releases in Sweden and the UK on Tuesday. Ahead of the data, we recommend positioning for medium-term EURSEK depreciation via put spreads. Swedish core CPI is expected to rise above target for the first time since 2010. SEK front-end yields should rise as the market increasingly prices in a Riksbank tightening cycle, supporting the currency (Chart 1). STEER™ has also triggered a short EURSEK signal, targeting short-term fair value of 9.4691.

In the UK, rates markets continues to price in a 25% chance of a Bank of England rate hike by the end of the year. CPI y/y rates may tick higher in July, but our view is that activity and price data will ultimately prove too soft to allow the BoE to hike this year. Our BNP Paribas short-term fair value model STEER™ remains short GBPUSD heading into the release and signals that there is room for GBPUSD to decline further towards its 1.2694 fair value.

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