After Article 50 has officially been triggered, there is a lot of attention to euro/pound, aka “the Brexit currency pair”. Here are two opinions seeing some downside:
Here is their view, courtesy of eFXnews:
EUR/GBP: Overvalued; Shorts Attractive Ahead Of French Election – TD
TD Research still like EUR/GBP lower on the grounds that the prospects of selling EUR/GBP reflects a few short-term drivers.
“Despite the nearly 2% percent drop last week, we like following the momentum in the cross. For one, the cross is still trading rich to its key cyclical drivers. Our model shows the pair is 2.3 SD rich to our HFFV, which points to a move below 0.82,” TD notes.
Moreover, TD notes that positioning data show the market is still long EUR/GBP, increasing the scope for pullback ahead of the French election and lowering the bar for a GBP rally.
EUR/GBP is trading circa 0.8539 as of writing.
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EUR/GBP: 3 Reasons To Sell – BNPP
BNP Paribas FX Strategy Research makes the case for selling EUR/GBP on the ground of the following 3 reasons:
1- The Brexit news flow should slow down ahead of Brexit negotiation progress which BNPP sees only starting in early June.
2– GBP Positioning is the shortest in G10 and some of the market’s short positions could be squeezed out as the news flow slows.
3- pricing in a 40% chance of a BoE hike this year but as the Brexit news flow slows down, markets should refocus on UK economic fundamentals.
In line with this view, BNPP remained positioned to short EUR/GBP exposure via options.
EUR/GBP is trdaing circa 0.8539 as of writing.
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