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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).


IGM FX and Rates 


  • Consolidates the pullback from 7.1561 (4 May high) over 7.0812 (8 May low, nr 50DMA).
  • With the 50/200 DMAs bullish cross intact & studies constructive, we favour renewed attempts on the 7.1561/7.1653 peaks.
  • Only a return below 7.0812 delays for further consolidation over 7.0527.



  • DEUTSCHE BANK - Short GBP/NOK at 12.33 for 11.85. Stop 12.60, citing policy & virus divergence, difficult Brexit outlook and oil recovery.
  • NORDEA buys USD/CNH for 7.3850. Stop 6.9520, citing trade deal stone dead from the outset, but no one had incentives to reveal pre-US election; COVID offers Trump admin opportunistic chance to opt for China bashing instead. (Crowded trade?).
  • MUFG Bank recommends going short NZD/RUB at 43.90 for 43.00. Stop 44.30, citing Kiwi will weaken after the RBNZ almost doubled plans for QE and signalled the option of negative policy rates. NZ also continues to maintain one of the strictest lockdowns, which is constraining the economy's ability to recover. The Rub, meanwhile, will continue to outperform with a firmer oil market. Lower vol and higher yields are also boosting the RUB's appeal.
  • BARCLAYS – Reiterates long USD/KRW NDF (Jun IMM expiry) recc, targeting 1260 and a tightened stop at 1210. Expect KRW to see a higher beta compared to CNY on rising US-China tensions, as believe policymakers will be inclined to limit CNY depreciation to avoid further problems. KRW is also most sensitive of EM Asian FX to equity risk sentiment weakness. Korean equities could see an increase in outflows heading into June 1's MSCI EM Index rebalancing where SK's index weight will be cut by 35.7BPs. Also, concerns over a rising second wave of local COVID infections weighs on the KRW.
  • BofAML - Late last week thanks to who the US investment house recommended/initiated a buy 3-mth AUD/JPY 68.5-66 ratio put spread. Entry 69.30, citing rising US-China trade tensions on Phase One commitments and double-top formation in SPX and AUD/JPY leaves the closely correlated two vulnerable. RISK - Positioning/conviction in the risk rally and large China fiscal stimulus.

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