High conviction trades: time to short GBP? - Westpac

Analysts at Westpac offered their high conviction trades.

Key Quotes:

• Last week's order to short GBP at 1.3295 has been filled. Hard to see GBP mounting a sustainable rally against the backdrop of a likely BoE policy easing that may include conventional rate cuts, a restart of QE and a clear preparedness to ease yet more if needed. GBP/USD unlikely trades much above 1.35 if at all. Stop 1.3430.

• Sell USD/CAD 1.3285, stop 1.3430. USD/CAD more likely tests 1.25 before 1.35 in summer even though recent data has been weak, including larger than expected trade deficits and weak FT jobs. Fort McMurray wildfire disruptions likely the cause and as such weak data should be ignored. H2 outlook in any case looks solid as activity bounces back from the disruptions and as Trudeau's fiscal stimulus kicks in. OIS gives 50% odds of a BoC cut by Mar 2017 but that is excessive given the strong 2016H2 growth outlook and as base effects of earlier lower oil prices feed into a higher CPI in 2016H2. US elections the major risk factor. A tight race will see USD/CAD firm given Trump’s anti-NAFTA/immigration stance.

• Buy USD/CHF 0.9740, stop 0.9640. Parity for USD/CHF not an impossible target before summer is out. The prospect of dovish signaling by Draghi at the ECB’s 21 July meeting one likely catalyst for a higher USD/CHF.

• Last week's order to sell USD/JPY was stopped out at 104.40.

• Total return in the past 12 months: +9.44%.