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FX Position Update - Close EUR/GBP Seagull With A 0.64% Profit‏

ByDanske Markets
Published 10/10/2013, 02:49 AM
Updated 05/14/2017, 06:45 AM
USD/JPY
0.23%
EUR/GBP
0.12%

We close our 3M EUR/GBP seagull before time with a 0.64% profit.

In FX Trends: Trust your central banker, published on 20 August, we recommended entering a 3M EUR/GBP seagull on an expected slow and steady move lower in the cross.

During August and September, we saw support to sterling from very strong UK numbers, not least from the UK housing market. However, we now believe the risks to sterling have become much more two sided.

1. The UK surprise index now seems to have peaked. Today, we saw disappointing industrial production data.

2. The market has once again postponed the expected timing of the first rate hike from the Bank of England. We see a risk that rate hike expectations could be scaled back further if we see more negative surprises.

3. Currently, we see broad support to the euro from better performances for peripheral bonds, the upward pressure on short-dated EONIA rates due to a tighter liquidity situation in the euro area and a less dovish Mario Draghi at last week’s ECB meeting.

We have, therefore, decided to close the strategy before time and earn the profit especially from the bought put with a 0.8470 strike. The sold 0.8700 call and the sold 0.8200 put can be bought back only with a small loss. All in all, the strategy can be closed with a profit of 0.64% (spot ref. 0.8467).

Note that our 6M USD/JPY risk reversal initiated on 22 March expired in September with a 0.9% profit (spot ref. 98.85).

See overleaf for an overview of our FX trades.

Sterling Rates Have Fallen UK Surprise Index
To Read the Entire Report Please Click on the pdf File Below.

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