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Initiated on May 1, we stay short GBP/USD from 1.2525 on a Seasonality in May basis. In our prior Viewpoint, we wrote then that the GBP can quickly give back ground its traditional gains made in April. Thanks also to BofAML, who say May is the worst month for GBP/USD with an average decline of 2.3% since 2010, it also appears to have intensified in recent years ie 2018 and 2019.
We took half profits on GBP/USD at 1.2283 on May the 7th, helping to guarantee profits. For the remainder, we target the 1.2000 area as this month tends to be the worst performing one for the Pound. It is certainly panning out that way so far. Note, we asked in the risk section of our bearish Gbp Week earlier, if the GBP’s downside momentum even increase in the latter part of the month? However here we would part qualify. Keep a keen eye on signs of Brexit compromise. That might be difficult at this stage but given the shortness of the very near-term market, higher could yet prove the path of least resistance!
On Friday, we also initiated a long USD/CNH at 7.1300 for a move on 7.2500 in the coming weeks, citing deteriorating US-China relations and possible retaliation from Beijing. However, we did warn in our bearish Cnh Week earlier that the market could be getting over excited about coming Yuan weakness. Certainly, fresh upside of late has been limited amid market suspicion of a possible PBOC line in the sand at 7.2000 and the possibility of it being a crowded trade (see below).
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