FxWirePro: Bullish, bearish scenarios of GBP and CAD – Keep check on both swings appending optionality

Bearish GBP scenarios are driven by:

1) Growth slows below 1% as consumers are squeezed by inflation and falling house prices.

2) Outright capital repatriation from slower moving long-term investors including central banks.

3) Initial Brexit talks flounder on the size of the UK's exit-bill

Bullish GBP scenarios are driven by:

1) The govt pursues a lengthy transitional deal with the EU which maintains the trade status quo for 2-3 years.

2) The economy rebounds to 2.0-2.5%.

3) 3-4MPC members dissent for tighter policy at the Aug MPC/QIR,

4) Current a/c deficit shrinks below 2%

Bearish CAD scenarios are driven by:

1) Fed strongly signals the intention to deliver quarterly hike while BoC scales back on signaled pace of rate normalization.

2) US-CA trade tension fears re-emerge.;

3) Commodity prices fall much further on China/global growth concerns;

4) Wobbles in the housing market cause a broader instability in the financial system.

Bullish CAD scenarios are driven by:

1) Fed pauses normalization cycle while BoC continues on a quarterly hike schedule;

2) Crude oil prices rise sustainably above $60/bl.

So, keeping all these attributes in mind here goes the strategy, go long in 1M 2 lots of ATM -0.50 delta put, and in 2M (1%) OTM -0.36 delta puts while shorting 1 lot of ITM put (0.5%) put with 2-week expiries.

Subsequently, the slight upward or sideway swings would derive the positive cash flows through the initial receipts of shorts which could be utilized for reducing hedging cost.