Strategy from Societe General
Societe Generale Research discusses GBP/USD outlook and adopts a more bullish view in light of the latest Brexit developments.
"The rejection of a no-deal by the UK Parliament and the successful motion to postpone Brexit are likely reshaping the balance of risks for the pound, and in a positive way. The pressure on the currency will undoubtedly be lighter if an ordered Brexit takes shape.
The protracted political deadlock provided the FX market with substantial time to digest and discount darker UK fundamental indicators. As a conclusive deal remains to be seen, the two tail risks remain a no-deal Brexit (negative) and no Brexit at all (very positive). The former is much less likely, while the latter remains a small possibility in an overly open situation," SocGen notes.
"With cable butterflies collapsing to pre-June 2016 Brexit vote levels, while volatility remains higher, it is fair to say that the options market is maintaining a political premium, but that the associated tail risks have been ruled out. With the downwards force of gravity reduced, GBP/USD is unlikely to fall below 1.30, and instead feel a certain weightlessness as the overvalued US dollar eventually weakens," SocGen adds.
For bank trade ideas, check out eFX Plus.
