Trades of the week

From the FXWW Chatroom: -Sell GBPJPY at market with a target of 162.00 and stop at 173.10
-Buy USDMXN at market with a target of 19.5 and stop at 18.0.
Along with the rising USD, the risk-sensitive JPY should do well too. Meanwhile, GBP has converted into a ‘commodity currency’ via its FDI into the commodity sector. This FDI does not pay dividends, pushing the UK’s income balance and with it the current account balance further into the red. The higher USD will add to commodity weakness, translating into a weaker GBP. The Brexit debate has gained momentum with PM Cameron on the back-foot, as indicated by recent survey data. BoE minutes and the quarterly reflation report leave the impression that there is no rush hiking GBP rates. Finally, mixed economic signals suggest that the fiscal tightening works now in a pro-cyclical way. See Why GBP Is Our Top G10 Short, January 21, 2016. The risk is that the large short positioning in the oil market gets squeezed and there is a large rally in commodity prices.

We like to sell GPBJPY at market with a target of 162.00 and stop at 173.10.

USDMXN has been trading in line with global risk appetite, and is largely decoupled from the country’s fundamentals. Friday’s payrolls number was weaker than expected, but the relatively strong hourly earnings print suggests the output gap in the US is shrinking, meaning the market should not further postpone additional Fed tightening. An environment of relatively weak global growth but tighter monetary policy in the US is unlikely to offer support to risk appetite. MXN is currently trading very closely with risk appetite, given its high liquidity and low yields. We like shorting MXN against USD as a way of expressing our concern on global risk appetite. The risk to our view is if equities and the general risk appetite environment pick up this week.

We like to buy USDMXN at market with a target of 19.50 and stop at 18.00.

View further market information in the FXWW Chatroom with a free trial

Leave a Reply

Your email address will not be published.