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5 Jul 2013
Flash: GBP/USD eyes long-term 1.4000 target – UBS
FXstreet.com (New York) - “We wish to continue running a short GBP/USD view, especially as the month will see further risk events for the GBP such as the August 7 inflation report where Carney is likely to further embellish the guidance concept and even introduce intermediate thresholds.” notes Research Analyst Gareth Berry at UBS.
As such, this will ensure the market maintains a downside bias towards GBP/USD and we currently hold a long-term target in the pair at 1.4000 once Fed tapering comes into effect. Nevertheless, in acknowledgement of the sharp move in our favor in the past week, now-high implied volatility, the extended skew towards GBP puts, ongoing decent UK data and the fact that the 'Carney risk' is now better understood and acknowledged, we wish to sell a August 15 expiry 1.44 strike GBP put / GBP call for 0.32% of face (spot: 1.4890) and turn our original trade into a put spread. “This recoups 31.5bp of our original outlay and leaves room for us to benefit from further GBP/USD declines down to 1.4400, a level near 2010 lows that should provide significant support.” Berry adds.
As such, this will ensure the market maintains a downside bias towards GBP/USD and we currently hold a long-term target in the pair at 1.4000 once Fed tapering comes into effect. Nevertheless, in acknowledgement of the sharp move in our favor in the past week, now-high implied volatility, the extended skew towards GBP puts, ongoing decent UK data and the fact that the 'Carney risk' is now better understood and acknowledged, we wish to sell a August 15 expiry 1.44 strike GBP put / GBP call for 0.32% of face (spot: 1.4890) and turn our original trade into a put spread. “This recoups 31.5bp of our original outlay and leaves room for us to benefit from further GBP/USD declines down to 1.4400, a level near 2010 lows that should provide significant support.” Berry adds.