GBP: market seems complacent - time to fade it? - TDS
|Analysts at TD Securities explained that the GBP has rallied sharply as referendum uncertainties have eased over the last week.
Key Quotes:
"Improving poll results and lengthening odds of an exit scenario on betting platforms have encouraged those looking for a Remain vote.
We think this rebound in sentiment toward cable may be reaching its peak, however. With a full month to go before the vote, we see notable risks that opinion could revert back to a more even keel.
At the same time, Sterling’s macro fundamentals remain weak, keeping the focus on downside risks for GBP. Interest rate differentials are pointing to a weaker currency ahead, particularly with the Fed back in play.
Options markets are painting a mixed picture. Implied vols may have eased but risk reversals and butterflies are pointing to continued risks of a sharp move lower. We think this will become a stronger influence on spot, particularly as we are now within the 1M window ahead of the vote.
We think current levels offer an attractive entry point to fade the rally in cable. We think spot will trade down to the 1.38-1.40 range ahead of the referendum while 1.4770 should provide solid resistance. That argues for placing stops slightly above as a clear move higher points to increasing risks of a larger advance."
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