MARKET MOVER - BNP PARIBAS - Investment Services India

This section is classified as non-objective research
evidence suggests that GBP will not weaken in
response.
We considered establishing a long GBPUSD
recommendation simultaneously with our long
NZDUSD position prior to the Fed’s announcement
last week. We shied away from the GBPUSD idea,
because the pair had already rallied sharply in
contrast to NZDUSD, which had lagged. Long
NZDUSD has performed strongly, however;
GBPUSD would have, too. Still, opportunity may
have knocked twice, as there are several factors that
now suggest GBPUSD may retrace to allow for an
attractive entry level. First, our BNP Paribas STEER
model suggests that GBPUSD is overvalued on a
short-term basis (see chart), signalling that fair value
is around 1.60 (vs. spot at 1.62). Second, our BNP
Paribas positioning indicator signals that FX investors
are still long GBP. However, long GBP positioning
has retreated sharply over the past week. The GBP
was the most owned currency a week ago, but has
fallen to rank sixth. This move suggests that the GBP
is approaching a level at which extreme positioning
may no longer present a barrier to further
appreciation.
Our technical analysts note that GBPUSD is trading
mid-range within a long-term triangle formation. Short
term, GBPUSD has stalled at horizontal resistance
around 1.63 and looks very overbought. A correction
back to 1.5890 is now very probable (the 38.2%
Chart 4: GBPUSD Vulnerable to Near-Term
Correction
Source: Reuters EcoWin Pro, BNP Paribas
correction of the rise to 1.6274). Such a move would
still respect the lower bound of the long-term triangle
formation, while our overall FX strategy view is that
an ultimate breakout will occur to the top side.
To benefit from a near-term retracement in GBPUSD,
but an ultimate move to the upside, we are initiating a
conditional long GBPUSD spot FX recommendation
on a pullback to 1.60. We target a move to 1.67 (our
end-Q3 forecast), with a stop at 1.5750.
FX Strategy / Steven Saywell 20 September 2012
Market Mover
40
www.GlobalMarkets.bnpparibas.com