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25 Apr 2016
GBP was the top performer last week - BBH
Analysts at Brown Brothers Harriman explained that sterling was the best of the majors last week, gaining 1.6% against the dollar.
Key Quotes:
"It recouped the losses from the previous two weeks and is now up almost 0.4% on the month. Strong economic data is not fuelling sterling's recovery. Employment data and retail sales disappointed. The UK provides a preliminary estimate of Q1 GDP. The median expects that growth slowed to 0.4% from 0.6% in Q4 15.
Sterling is flirting with a down trendline drawn off the early-February high and March highs. It was near $1.4410 before the weekend. Although on April 21 and April 22, the trendline was penetrated on an intraday basis, sterling has not closed above it. The next resistance is cited near $1.4500-$1.4520. While the technical tone is constructive, we suspect that the overall dollar direction will drive sterling.
We are also not convinced that Brexit fears are over. Three-month implied volatility has softened over the past couple of weeks, but it remains elevated compared with any period but the most recent over since 2010. The premium being paid for three-month puts over calls (25-delta) remains near record levels. Note that starting with the new week, two-month options can be used protection for the UK referendum. We suspect investors and businesses with sterling exposure have simply backed off a bit and looking for better prices to raise hedge ratios. We peg support for sterling in the $1.4280-$1.4300 area.
Perhaps, if one feel compelled to trade sterling from the long side, the crosses against the euro, Swiss franc or yen may be a more efficient way to express the view. The euro has been trending gently lower against sterling since April 7, so one is not picking a top. The euro closed below GBP0.7800 support before the weekend, and finished on its lows. This could see euro fall toward GBP0.7680, and possibly GBP0.7550."
Key Quotes:
"It recouped the losses from the previous two weeks and is now up almost 0.4% on the month. Strong economic data is not fuelling sterling's recovery. Employment data and retail sales disappointed. The UK provides a preliminary estimate of Q1 GDP. The median expects that growth slowed to 0.4% from 0.6% in Q4 15.
Sterling is flirting with a down trendline drawn off the early-February high and March highs. It was near $1.4410 before the weekend. Although on April 21 and April 22, the trendline was penetrated on an intraday basis, sterling has not closed above it. The next resistance is cited near $1.4500-$1.4520. While the technical tone is constructive, we suspect that the overall dollar direction will drive sterling.
We are also not convinced that Brexit fears are over. Three-month implied volatility has softened over the past couple of weeks, but it remains elevated compared with any period but the most recent over since 2010. The premium being paid for three-month puts over calls (25-delta) remains near record levels. Note that starting with the new week, two-month options can be used protection for the UK referendum. We suspect investors and businesses with sterling exposure have simply backed off a bit and looking for better prices to raise hedge ratios. We peg support for sterling in the $1.4280-$1.4300 area.
Perhaps, if one feel compelled to trade sterling from the long side, the crosses against the euro, Swiss franc or yen may be a more efficient way to express the view. The euro has been trending gently lower against sterling since April 7, so one is not picking a top. The euro closed below GBP0.7800 support before the weekend, and finished on its lows. This could see euro fall toward GBP0.7680, and possibly GBP0.7550."