Forex Institutional Research: Barclays Capital FX Thoughts

Forex Institutional Research: Barclays Capital FX Thoughts

Key quotes from the report: 

Barclays Capital FX Thoughts ‘Out Of Bullets’

Barclays Capital FX Thoughts Amid fragile risk sentiment and a weakening global economy, policy responses are again the focus ahead of this week’s G20 Finance Minister and Central Bank Governors Meeting (Friday-Saturday in Shanghai). .

Markets Skeptical Of Policymakers’

“Markets, however, have become increasingly sceptical of policymakers’ ability to stimulate growth and inflation, particularly with many policy rates already negative. While a supportive message from the G20 may test this view and temporarily support risk sentiment, growth concerns have been the main driver of risk aversion and are unlikely to change. As such, EM and commodity currencies are likely to continue to underperform, while safe-haven currencies such as the JPY should benefit”

Concern Over Weakening US data

“The market has been particularly concerned by the recent weakening in US data, causing a further reduction in Fed hike expectations and market- and survey-based inflation expectations. These declines recently caused St. Louis Fed President Bullard now to view it as “unwise to continue normalization”

Trade Of The Week – Short EURGBP Sell GBPJPY Rallies

“We believe the positive EU summit outcome should push EURGBP lower over the coming week. Recent GBP weakness against the EUR has been unjustified, in our view, particularly in the context of still-superior UK growth compared with the euro area and our expectation of further ECB policy easing. The possibility of exit remains, however, and we recommend using any GBP strength against the JPY to initiate short GBPJPY positions to hedge against that risk”

“The possibility of exit remains, however, and we recommend using any GBP strength against the JPY to initiate short GBPJPY positions to hedge against that risk. The optionimplied correlation between GBPUSD and USDJPY remains negative. In a scenario in which a potential UK exit from the EU could raise questions about the stability of the European Monetary Union and lead to a broader deterioration in risk sentiment, we would expect GBPUSD and USDJPY to depreciate together. Our technical strategists are also bearish GBPJPY; selling interest above 166.00 helps to keep our focus lower in the short term. A move below the 159.80 lows would endorse our bearish view towards our targets near 156.35. A break below 156.35 would point to further weakness towards our greater targets in the 147.00 area2

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