Morgan Stanley: GBP trading secrets
Analysts at Morgan Stanley expect GBP/USD to become vulnerable to the downside as fundamental factors, especially relative rate expectations, return as the main drivers of this pair.
The specialists think that while the prospect of the Bank of England’s rate hike in the first quarter of 2015 has already been priced in GBP/USD, the upward shifts of the Fed’s rate projections last week put the focus on the downside for the pair. The uncertainty generated by the Scottish referendum resulted in a slowdown of investment inflows to Britain in the past few months. This used to be an important supportive factor for sterling. These flows won’t return to the UK immediately, so pound will be left without this important support. In addition, British economic growth starts slowing down.
The outlook for GBP versus USD and EUR is different. Morgan Stanley views the rebounds of GBP/USD to the $1.6700 area as selling opportunities. The move below $1.6460 generates a renewed bearish signal, returning the focus to the $1.6050 lows.
At the same time, MS notes that the pound has better chances versus the euro. EUR/GBP may be sold on rebounds to 0.7900 targeting 0.7600 and 0.7500 by the year-end.