Login Open account
United Kingdom
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider.
Show more
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money. Losses can exceed deposits on some products.
Show less
Sterling convexity call returns 25% in two months Sterling convexity call returns 25% in two months Sterling convexity call returns 25% in two months

Sterling convexity call returns 25% in two months

Forex 5 minutes to read
Kay Van-Petersen

Global Macro Strategist

Summary:  Back in January, we made a few projections on sterling pairs like EURGBP, GBPUSD, GBPJPY and GBPAUD. Despite all of the Brexit volatility and the headline risk, we were correct, and the overnight levels in each of these pairs marked very significant two-month returns.

Looking back at our Macro Monday report published January 21, we see reason for a little bit of a victory celebration...

Let's take a look at the calls we made then, and measure them against the overnight levels in a few key currency pairs:

 January 21 close

EURGBP: 0.884253
GBPUSD: 1.2863
GBPAUD: 1.7942
GBPJPY: 141.03		Overnight session

 0.84725 (+4.37%, drawdown would have been -0.23%) 
1.3381 (+4.03%, drawdown would have been -0.70%)
 1.8853 (+5.08%, drawdown would have been -0.41%)
148.728 (+5.46%, drawdown would have been -0.29%)
For those of you who don’t trade forex, bear in mind that leverage of 5x to 10x is not aggressive in the G10 FX world, so +5% return  is really a +25% return for most investors… in under two months!

Was there a lot of risk in the view? Well, January's consensus generally held that GBP was headed for the depths as Brexit tore the UK economy apart, so it was a pretty contrarian call.
Macro Monday
A few additional points now that the original thesis has had its phenomenal tactical run:

• We would cover tactical longs in sterling baskets, as the potential base case we saw was for either a soft exit or some kind of delay. The issue now will be when will the next date is set – again, assuming that it still comes through, and bearing in mind the European parliamentary elections in May and potential changes in the UK's Parliament. What’s more interesting is, if/when we get an extension, a second referendum could fall within that timeframe.

• Obviously a longer extension before an actual decision just stretches our the UK's current headwinds phase. If you consider that Britain has been in the midst of Brexit uncertainty for over two years now, however, you must note that the UK economy has held up better than many expected. Confession time: I was among the tide of lemmings calling for a recession within six months of the Brexit vote!

• There are always opportunities, even if it means running against the crowd and risking a potential 5-8% drawdown. You control for that, of course, by allocating 25 to 100 bps of risk.

• One only needs a few +25% returns on capital trades to start having a real rock & roll year!

• I wish everyone a great close to the first quarter. We see a lot of potential opportunities over the next two weeks, including the short EURPLN divergence thesis between Poland and the Eurozone that we covered in our Macro Monday report published on March 4.

I have attached the two charts and a  simple thesis on EURPLN shorts from that deck. I still think 4.25 from these 4.30 levels is very doable with a final 25% target at 4.20 and the balance below that. Note also that we flagged this divergence theme prior to the European Central Bank's hugely surprising dovish pivot. We would leave enough dry powder to double the position at 4.35; at 4.40, we’d have to go back to revisit the thesis and see if things have changed, and/or if our timing was just off.
 

Quarterly Outlook 2024 Q2

2024: The wasted year

01 / 05

Macro: It’s all about elections and keeping status quo

Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

Read article

FX: The rate cut race shifts into high gear

As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

Read article

Equities: The AI and obesity rally is defying gravity

Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

Read article

Fixed income: Keep calm, seize the moment

With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

Read article

Commodities: Is the correction over?

Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

Read article

  • Macro: It’s all about elections and keeping status quo

    Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

    Read article

  • FX: The rate cut race shifts into high gear

    As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

    Read article

  • Equities: The AI and obesity rally is defying gravity

    Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

    Read article

  • Fixed income: Keep calm, seize the moment

    With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

    Read article

  • Commodities: Is the correction over?

    Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

    Read article

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom
Products & pricing
Platforms
Accounts & service
General
Other
Legal

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, or any of our other products work, and whether you can afford to take the high risk of losing your money. The value of your investments can go down as well as up. Losses can exceed deposits on some margin products. Professional clients can lose more than they deposit. All trading carries risk.

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992