Global Markets React to Strong U.S. Jobs Data and Rising Yields 
Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed 
Japan’s Inflation Edges Higher in October as BOJ Faces Growing Pressure to Hike Rates 
Japan’s Finance Minister Signals Alignment With BOJ as Rate Hike Speculation Grows 
RBI Cuts Repo Rate to 5.25% as Inflation Cools and Growth Outlook Strengthens 
US Gas Market Poised for Supercycle: Bernstein Analysts 
Bank of America Posts Strong Q4 2024 Results, Shares Rise 
Singapore Maintains Steady Monetary Outlook as Positive Output Gap Persists into 2025 
New RBNZ Governor Anna Breman Aims to Restore Stability After Tumultuous Years 
China's Refining Industry Faces Major Shakeup Amid Challenges 
Brazil Central Bank Plans $2 Billion Dollar Auctions to Support FX Liquidity 
Indonesia Surprises Markets with Interest Rate Cut Amid Currency Pressure 
RBA Signals Possible Rate Implications as Inflation Proves More Persistent 
UBS Predicts Potential Fed Rate Cut Amid Strong US Economic Data 
Fed Officials Split as Powell Weighs December Interest Rate Cut 
Bearish EURGBP Scenarios:
1) European growth fails to lift above 1%.
2) Stalemate in the UK-EU Brexit trade talks, which increases the risk of a no-deal exit at the end of 2020.
3) The UK government announces a much more stimulatory budget in March (the manifesto envisaged fiscal thrust of 0.4-ppt for 2020 and nothing thereafter).
4) Johnson eventually acknowledges the need for a lengthier transition period.
5) The UK government softens its stance and agrees to closer regulatory alignment to maintain frictionless trade.
Bullish EURGBP Scenarios:
1) A more substantive loosening in German fiscal policy.
2) The BoE cuts rates in January or March
3) The UK economy fails to rebound after the election.
4) A lengthy extension to the Brexit transition period beyond end-2020.
5) A re-acceleration of CB demand for EUR, potentially linked to #2 and #3.
6) Johnson refuses to soften his trade stance, leading to an even greater risk of a no deal exit at the end of 2020.
Along with the easing in global trade tensions provides strong justification for the BoE keeping interest rates unchanged at 0.75% at this juncture. However, following dovish comments from a number of MPC members recently, today’s outcome is viewed by the market as 50/50, while a full 25bp cut is priced by May. While we believe it more likely than not that the MPC keep rates unchanged, we also doubt that the message from the Committee will be sufficiently strong to alter meaningfully the market’s belief that a rate cut may be forthcoming in the near term.
Hence, our defensive stance in EURGBP has been dictated by the receding global economic tide, but we cannot ignore that political risk has been an instrumental factor in these worse macro outturns. This warrants a tactical reduction in our defensive exposure but we uphold our hedging portfolios via 3-way straddles.
The passively skewed IVs of 3m tenors are well-balanced, indicating both upside and downside risks, more bids are observed for OTM call strikes up to 0.8350 level.
While EURGBP risk reversals of the existing bullish setup remain intact despite fresh bids for bearish risks in the short-term tenors. Below options strategy could be deployed amid the expected turbulent conditions. According to the OTC FX surface, 3-way options straddle versus ITM calls seem to be the most suitable strategy for EURGBP contemplating some OTC sentiments and geopolitical aspects.
Options Strategy: The strategy comprises of at the money +0.51 delta call and at the money -0.49 delta put options of 3m tenors, simultaneously, short (1%) ITM put option of 1m tenors. The strategy could be executed at net debit but with a reduced trading cost.
Hence, on hedging as well as trading grounds, initiate above positions with a view of arresting potential FX risks on either side but slightly favoring short-term bearish risks. Courtesy: Sentry, Saxo & JPM
