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UK data has surprised positively in recent weeks, but only in the context that markets were anticipating a contraction in Q3 activity. The actual results are probably closer to signalling a stalling to zero growth, still not a great scenario for the externally vulnerable GBP.
We continue to see scope for GBPUSD to push back below 1.30 in the near-term.
AUDUSD declined below 0.75 yesterday, now trading around the 100dma of 0.7482 and we think a further break lower is likely in the near-term. The greatest impact from steeper yield curves globally on G10 FX has thus far come through the risk appetite channel and with global equities under pressure there is room for the AUD to weaken further. Our BNP Paribas STEER model signals that a 10% decline in MSCI world corresponds with a 7% decline in the short-term fair value for AUDUSD. Furthermore, BNP Paribas FX Positioning Analysis continues to signal the market is net long AUD with a score of +16, which is close to the largest long position for the last three years.
We continue to target a break below 0.70 by year-end and recommend downside through a bearish seagull (10-Nov-16 expiry): buy 0.7325 put, sell 0.7950 call, buy 0.8200 call.
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