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3 Jun 2015
GBP/NOK shorts a good tactical trade - JPM
FXStreet (Barcelona) - Paul Meggyesi, FX Strategist at J.P.Morgan, explains that GBP/NOK provides good entry levels for a tactical trade, and further remains short on the pair, targeting 11.87 levels.
Key Quotes
“One statistic should sufficient to illustrate the tactical case to own NOK - the unemployment rate is exactly the same as it was when Brent peaked at $115 last summer, namely 2.7%. This hardly speaks of an economy that is struggling to come to terms with the new oil market realities, even if a lagged rise in unemployment is to be expected. This is not to deny that a halving of the oil price will have a material effect on the economy, of course it will, it's just that the magnitude of the downturn is proving less intense than many, including the Norges Bank, believed (1Q GDP growth was reported this week at 2.0% saar).”
“The association with oil is hard for the currency to shake-off, but the psychological oil-slick means that NOK is the cheapest G10 currency whereas GBP is virtually the most expensive, in other words these are good entry levels for a tactical trade that exploits a potential rebound in oil prices over July and August.”
“The Norges Bank is expected to cut rates on June 18th but we doubt whether this should depress NOK since the front-end of the NOK rate curve is priced for marginally more easing than the Norges Bank itself projects.”
“Ahead of the rate decision the most relevant macro release will the preliminary energy sector capex survey for 2016 on June 12. This will have a potential bearing on the Norges Bank’s longer-dated rate guidance to the extent that it shows the slide in capex continuing into 2016 or starting to wind down. That being said, chances are that the survey will have less of a dramatic effect on policy expectations than it did this time last year (the slump in capex which the 2015 survey revealed was the catalyst for the Norges Bank to swing from contemplating rate hikes to delivering actual cuts within six months). The survey (which is based on nominal capex) will be benchmarked against the Norges Bank’s forecast for real capex which sees a 10% drop next year following a 15% slump this year (the latter will subtract nearly 1% from total GDP growth).”
“Sell GBP/NOK at 11.87, stop at 12.15.”
Key Quotes
“One statistic should sufficient to illustrate the tactical case to own NOK - the unemployment rate is exactly the same as it was when Brent peaked at $115 last summer, namely 2.7%. This hardly speaks of an economy that is struggling to come to terms with the new oil market realities, even if a lagged rise in unemployment is to be expected. This is not to deny that a halving of the oil price will have a material effect on the economy, of course it will, it's just that the magnitude of the downturn is proving less intense than many, including the Norges Bank, believed (1Q GDP growth was reported this week at 2.0% saar).”
“The association with oil is hard for the currency to shake-off, but the psychological oil-slick means that NOK is the cheapest G10 currency whereas GBP is virtually the most expensive, in other words these are good entry levels for a tactical trade that exploits a potential rebound in oil prices over July and August.”
“The Norges Bank is expected to cut rates on June 18th but we doubt whether this should depress NOK since the front-end of the NOK rate curve is priced for marginally more easing than the Norges Bank itself projects.”
“Ahead of the rate decision the most relevant macro release will the preliminary energy sector capex survey for 2016 on June 12. This will have a potential bearing on the Norges Bank’s longer-dated rate guidance to the extent that it shows the slide in capex continuing into 2016 or starting to wind down. That being said, chances are that the survey will have less of a dramatic effect on policy expectations than it did this time last year (the slump in capex which the 2015 survey revealed was the catalyst for the Norges Bank to swing from contemplating rate hikes to delivering actual cuts within six months). The survey (which is based on nominal capex) will be benchmarked against the Norges Bank’s forecast for real capex which sees a 10% drop next year following a 15% slump this year (the latter will subtract nearly 1% from total GDP growth).”
“Sell GBP/NOK at 11.87, stop at 12.15.”