GBP still the favoured short - Westpac

Research Team at Westpac, suggests that despite the conflicting picture their macro, model and technical scores remain heavily biased against GBP and they suggest to sell GBP on strength at 1.2940, stop 1.3070 due to the reasons mentioned below. 

Key Quotes

“The stage seemed set for healthier risk appetite – Trump risk has been abating if both polling and betting markets are anything to go by, OPEC’s pseudo agreement to cut output places a floor under oil prices, the BoJ’s pivot to targeting 10yr yields around zero should compress vol while Fed hike odds for Dec seem set to hold steady with that meeting still more than two months away. But unsubstantiated talk of ECB tapering, legal and settlement risks for Deutchse Bank and a heavy slate of political risks for Europe including the Italian referendum and Dutch, German and French elections all threaten to upend the benign scenario.

Despite that conflicting picture our macro, model and technical scores remain heavily biased against GBP.  We sell GBP on strength at 1.2940, stop 1.3070. The ruling Conservative Party’s annual conference has told us what we knew: Brexit negotiations will be difficult and budget plans will have to be loosened. Confidence will not be strengthened, despite recent survey improvements, by clarity on Article 50 being triggered. BoE accommodation and this uncertainty will keep the bias for a lower GBP intact despite heavy short positioning.”