Summary
G10 Themes:
Sell EURJPY: An Outlier Among EUR Crosses
EUR crosses face downside risks from structural factors and potential ECB easing expectations.
EURJPY, in particular, looks vulnerable, having been propped up by JPY short positioning ahead of the end-April BoJ meeting.
We are selling spot, positioning for a 3% move lower. We also like buying a 2M 99/107 DNT. We also list some other options structures to gain exposure to this view.
EURNOK to Grind Lower
We expect EURNOK to continue to grind lower, supported by Norway’s more favourable growth outlook.
Scope for a policy response to a stronger NOK is limited.
We go short EURNOK targeting 7.45 with a stop at 7.61.
FX Recommendations
Short EURUSD at 1.3210, targeting 1.28, stop loss 1.3435
Short NZDCAD at 0.8100, targeting 0.7800, stop loss 0.8220
Short EURJPY at 105.50, targeting 102, stop loss 107.10
Short EURNOK at 7.54, targeting 7.45 stop loss 7.61
Buy 2m (Jul 5) EURJPY 99/107 DNT for 12% (Spot ref: 105.50)
Pay AUDOIS, buy AUDUSD 10 week Put
Market Sentiment & Positioning
CFTC report shows net GBP short position has been unwound substantially, providing less support for GBPUSD bears FX sales client survey shows GBP has reached extreme levels
BNP Paribas Momentum Indicator also suggests the recent sharp GBP rally may now be running out of steam
Click here to read the full report: FX Weekly
BNP Paribas