Currency investors should consider buying GBP/USD this week, advises Credit Suisse in its weekly FX pick to clients.
a light data schedule for the US week ahead, we see potential for the
GBP to rally the most among G10 currencies against the USD.
market is only beginning to acknowledge that the UK economic data may
not come in as weakly as expected. Good data prints in services PMI, IP
and house prices following other positive prints in manufacturing PMI
and retail sales should continue to alleviate market concerns regarding
the Brexit result and lead to an asymmetrically large rally in GBP
This leads directly to the second point - that market positioning is still extremely short and still has some way to unwind.
while the headline US payrolls number was not particularly weak, slow
labor wage growth and a shortened work week should be sufficient (in
combination with other weak data prints such as ISM and US political
risks) to keep the Fed on hold and progressively price a Sep hike out of
the picture over the week.
The main risks to the trade are
if the upcoming data print unexpectedly worse, and if UK political
developments signal a consensus forming around a "hard Brexit" policy
cocktail," CS says as a rationale behind this call.
As a technical trade, CS booked profit today on its GBP/USD long from 1.3064 at 1.3355.