After Friday’s strong reversal in cable, traders decided that perhaps QE2 is sterling negative, so as a result, it is underperforming risk currencies on open today.
While GBP/USD is flat, the smart money is selling GBP/CAD today, with the CAD really benefiting from a significantly better-than-expected employment report. We believe GBP/USD remains a ‘sell on rallies’. While positive news flow from Europe will certainly help the pair, traders remain of the view that in the longer term, the BoE could perform further gilt purchases. We would look to sell GBP/USD around 1.5960, however in the short term, the momentum trade is short GBP/CAD. UK data is thin on the ground today, although the Lloyds employment confidence report was released in early Asian trade, showing a mild deterioration in confidence with the index hitting negative 67. It is worth noting that net positioning held by speculative traders has shown another increase in short positions, which suggests that if we do see good news, the pair is at risk of short covering.