Focus this session – across all asset classes – is firmly fixed on the European Central Bank's monetary policy meeting although bank chief Mario Draghi isn't expected to deliver much beyond dovish rhetorical attempts to weaken the euro.
Strategic trade
Trade view / 20 July 2016 at 9:34 GMT

#SaxoStrats: Playing the sterling surge via EURGBP

Head of FX Strategy / Saxo Bank
Instrument: EURGBP
Price target:
Market price:

The market was distracted by somewhat stronger than expected UK data today, but as the bulk of the data is from the May cycle (earnings and payrolls/unemployment rate) and the only June number was a better than expected Jobless claims number, we have to search elsewhere for a driver of the sterling rally today off the new local lows. 

The best explanation appears to be a monthly “Agents Summary” from the Bank of England that normally doesn’t even merit a mention in economic event risk calendars, but given the Brexit vote, perhaps took on added interest this time around. 

It was released around the same time as the data this morning and suggests that the lending activity of British banks is continuing as normal and contains a number of other rather positive comments, even if concern levels are clearly higher. 

This, in addition to strong global risk appetite lately, the BoE neglecting to cut rates at the most recent meeting, heavy short sterling speculative positioning, and the enormous M&A flow implications from Japan’s Softbank acquisition of the UK’s ARM Holdings (£24-plus billion) suggest that the risk of a squeeze on sterling shorts may be running high at the moment, at least in the near term.

EURGBP daily:

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Source: Saxo Bank 

Management and risk description

The risk to this trade is that risk appetite turns, this agents’ summary fails to generate further interest in sterling, and/or that the ECB meeting tomorrow triggers a euro rally, thus stopping out the trade.

EURGBP monthly chart:
Source: Saxo Bank 


Entry: short EURGBP in the 0.8350-75 area.

Stop: 0.8430.

Target: 0.8125

— Edited by Michael McKenna

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Non-independent investment research disclaimer applies. Read more
brian1983 brian1983
May i ask in ur own view. what will be a better price to short GBP USD?


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