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
“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.”