v Euro
(EUR) and British Pound (GBP) experienced strong sell-off recently. Focus is
shifting from Euro (EUR) to British Pound (GBP). Players are seeing more
downside risks to it as it unwinding bullish bets on Bank of England (BoE) and
risk of Scotland’s independence from UK. Is it true?
v In
the latest week ending 9 September, speculators have build-up net short EUR
contracts of 3.15 times more compared to 1.03 times on 20 May 2014 – volumes
not seen since the Eurozone crisis. Meanwhile, speculators remained in net long
GBP contracts even though players have started to pare their bullish GBP bets
from July. The short GBP contracts are only showing gradual increase as the
issue of Scottish referendum surfacing recently.
v We
assign higher probability that net short EUR position will continue to build up
as EUR bears are convinced over Draghi’s determination to push the currency
lower. On the other hand, we argue greater possibility of stronger net long GBP
position if Scotland stays and BoE delivers its promises in early 2015. Westminster is stepping up its commitment to greater
devolution for Scotland.
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