Synopsis: ANZ proposes a tactical trade of selling EUR/GBP, forecasting a potential shift in growth between the UK and Euro Area (EA). The bank suggests entering at 0.87 with a subsequent target of 0.85.
Comparative Economic Performance: Currently, both the UK and the Euro Area (EA) exhibit signs of decelerating growth, as reflected in their declining Purchasing Manager Indexes (PMI). However, the UK appears to have some growth potential left, contrary to the EA where a recession is anticipated in the second half of 2023.
Central Bank Policies: Given the economic scenarios in both regions, it is unlikely that their respective central banks will opt for interest rate hikes in the near future. This status quo puts the GBP at a carry advantage over the EUR.
Tactical Trade Proposition: To capitalize on this expected dynamic, ANZ suggests adopting a short position on EUR/GBP. They recommend entering this trade at a level of 0.87, targeting a subsequent level of 0.85.
Conclusion: In the backdrop of contrasting growth prospects between the UK and EA, ANZ puts forward a tactical trade strategy favoring the GBP over the EUR. By entering a short position on EUR/GBP at 0.87, investors could potentially benefit if the pair drops to the 0.85 level.