Short GBP/CAD – Nomura
Research Team at Nomura, suggests to go short on GBP/CAD pair as they
expect poor data, risk sentiment and the elections to prompt GBP
underperformance.
Key Quotes
“The market
has seen a good amount of unwinding of the Brexit downside trade in
GBP/USD in recent weeks. It has broken above the 1.39 to 1.46 range, and
momentum has been with the USD long unwind.
A weak construction
PMI was released this morning in the UK, which continues the
deterioration in data that we have been seeing in the UK for several
weeks now. The implied probability of a Brexit as gauged by Betfair has
risen recently from 26% to 30% and GBP has sold off vs EUR but not the
USD. This GBP/USD disconnect will probably revert back during May, when
risk assets tend to underperform, but we will likely have to wait for
nonfarm payrolls on Friday for a catalyst.
Either way politics
will likely come back into focus with David Cameron speaking tomorrow in
front of MPs on the EU referendum, but also on the local election
results that will be published during Thursday and Friday. If there is a
good result for UKIP as some predict, it could spark renewed market
concerns over the possibility of a Brexit.
For us the USD unwind
is the unpredictable factor, so we prefer to trade RV here. USD/CAD
continues its grind lower in the face of a weak USD and oil prices
finding a base here. Canadian employment is a risk to the trade, but we
do not expect a weak number. Therefore GBP/CAD is perhaps a better way
to express the GBP downside view this week.
Therefore, we like short GBP/CAD here at 1.84, looking for a move below 1.81 towards 1.80.”
