FxWirePro: Sterling Seems Vulnerable Again To Macroeconomic Factors – Reshuffle Short GBP Trades

In the UK, the government has announced changes to its business emergency loan schemes, including the removal or reduction of personal guarantees for small business loans and government loans extended for mid-sized firms with turnover between £25-500m.

Data wise, the final March services PMI reports across Europe are expected to be revised lower, as they incorporate responses from later within the crisis. The preliminary UK services PMI had already slumped to 35.7, we pencil in a revision to an all-time low of 34.8.

As a result of both Brexit and now the virus, the UK has transitioned from a high-growth, high-yield country to a very low-growth, almost no yield country that still needs to finance a sizeable current account position (and of course prevent existing foreign capital from being repatriated).

Unfortunately we suspect GBP is vulnerable to a sense that the virus crisis in the UK is running a few weeks behind Italy and Spain which could expose GBP to increasing pressure in coming weeks. Unlike the EUR in recent weeks, the currency can expect to derive no support from an unwind of either a short investor base or a purge of locally-funded carry trades. If anything the market continues to be modestly long GBP.

Trade Tips: 

Activated shorts in GBPUSD at 1.2399 levels, we now like to uphold these positions.

Contemplating prevailing spot levels, tunnel spreads were also advocated on trading grounds with upper strikes at 1.1792 level and lower strikes at 1.1409 levels.

Alternatively, activated shorts in GBPUSD futures contracts of April’20 deliveries with an objective of arresting potential slumps.

While GBPJPY short were also suggested at around 133.25-30 with SL around 134 for the targets of 130.65 levels.

And finally, short GBPCHF from 1.2575 on in mid-January, marked at +5.16%. stop raised to 1.21. Courtesy: JPM