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
- 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.