Forex - EUR/GBP, GBP/USD Flows: GBP still under pressure ahead of GDP data, but positioning extended


 08:17 (GMT) 10 Jul

  [Forex Flows]

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EUR/GBP, GBP/USD Flows: GBP still under pressure ahead of GDP data, but positioning extended (0101-MSFF-C04)

EUR/GBP has made new 6 month highs this morning ahead of the GDP data to be released later. This is the 10th consecutive week of EUR/GBP gains, and in the history of the EUR/GBP cross, last week was the first time we have seen 9 consecutive weeks of gains. While technical indicators don't suggest there is a major reversal imminent, this history does suggest there are plenty of short GBP positions around, both against the USD and the EUR, as is suggested by the latest IMM data.

EUR/GBP, GBP/USD Flows: GBP still under pressure ahead of GDP data, but positioning extended (0101-MSFF-C01)

So while there is unlikely to be anything clearly positive for GBP from UK news, with even stronger than expected GDP data today probably not enough to prevent a Q2 decline in GDP, and last night's TV debate offering little hope of a positive resolution to the Brexit crisis, positioning could be vulnerable to a short term shock. While we still see mainly downside risks for the longer run, 3 and 6 month options offer excellent value at current low levels of volatility whatever your view, given the potential for significant events both in the UK and elsewhere, with the Fed and the ECB potentially making market moving decisions.

EUR/GBP, GBP/USD Flows: GBP still under pressure ahead of GDP data, but positioning extended (0101-MSFF-C03)

For today, we look for something slightly weaker than market expectations in the GDP data, and see significant risks of Powell pushing back against market expectations of Fed ease at the end of July, both of which suggest downside risks for GBP/USD near term, with the year's lows at 1.2436 (according to the Reuters data) potentially under threat.

EUR/GBP, GBP/USD Flows: GBP still under pressure ahead of GDP data, but positioning extended (0101-MSFF-C02)

Forex - EUR/USD, USD/JPY Flows: Fed Monetary Policy Report released, USD remains firmer


 15:14 (GMT) 05 Jul

 [Forex Flows]

The Fed has released its semi-annual Monetary Policy Report, which will form the basis for Powell's testimony on Wednesday. There are no major surprises, but that it suggests weakness in inflation is on transitory influences may disappoint those hoping for easing. The Fed does however see slowing growth in Q2 due to weakness in exports, inventories and business investment, seeing tariffs as material to the slowing, though healthy consumer spending is also noted. The Fed states it will act as appropriate to sustain the expansion, but there is nothing much in its assessment of the economy that is new. The USD's firmer post-payroll tone has not been significantly dented by the report.


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