Long GBP vol in 2016 – RBC CM

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 30, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
    Likes Received:
    FXStreet (Delhi) – Research Team at RBC Capital Markets, remains constructive for GBP but recognise there are a number of downside risks which may rise up the agenda in 2016 (most notably the UK’s unsustainable current account deficit and the EU referendum, promised for end-2017 at the latest).

    Key Quotes

    “Higher policy rates should allow the external deficit to be resolved in a constructive manner that does not “require” a weaker currency, but we also have to recognise that the downside risks for the currency are growing. A simple basket of long EUR/GBP and GBP/USD 1yr vol currently trades at a 1.5 vol discount to EUR/USD vol – at the bottom of the range that has prevailed for most of the last three years. We think it increasingly likely the GBP legs should trade at a premium and position accordingly (long EUR/GBP and GBP/USD 1yr; short EUR/USD 1yr).”
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