ANZ on Brexit: Insufficient progress the most likely scenario (& here’s the trade)

ANZ on Brexit — recommend selling GBP, specifically GBP/CNHThe ANZ note is detailed, but their reasoning in brief:
The European Parliament resolution states that there hasn’t been ‘sufficient progress’ in the Brexit talks

  • this will feed into the official EU summit’s vote later in the month (19-20 October)
  • we see little chance the EU leaders will contradict the Parliament’s resolution
  • Without a judgement of ‘sufficient progress’, the EU’s negotiators won’t be allowed to start negotiations on either a transition period or the future trade relationship
  • negotiations around both a transition period and a trade deal likely to be postponed to December at best

On sterling:

  • As the market digests the further rise in uncertainty, we see the potential for some near-term weakness in the GBP, and we recommend tactically selling it against the CNH. 
  • Chinese authorities are signalling they don’t want yuan to weaken too much from current levels, meaning the CNH is likely to trade steadily. Further, from a technical perspective, the cross looks to have topped out near the resistance level (just below 9) and is due for some tactical retracement
  • We recommend selling the cross with a target of 8.66, and we will reassess the trade at 9.00.

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