In our 3 Article 50 scenarios, a short squeeze is certainly an option. The team at Barclays lays out the case for a “buy the fact”.
Here is their view, courtesy of eFXnews:
One of Barclays Capital Research’s ‘greatest conviction’ now lies in the pound where Barclays expects the triggering of Article 50 on Wednesday to initiate a strong rebound in GBP from historical undervaluation as ambiguity over Brexit recedes.
“While the event itself has been widely broadcast and the GBP response is likely to be limited, we expect this regime shift to initiate a “sell the rumor, buy the fact” rebound in sterling over the coming weeks and months,” Barclays argues.
Barclays’s rationale is that sterling’s exchange value has been depressed to historic low, and any shrouding of the Brexit fog is likely to trigger a confluence of short-term factors to accelerate a rebound in the currency.
In terms of GBP near-term dynamics on the immediate aftermath of PM May’s letter, Barclays notes that the President of the European Council Donald Tusk will present the initial Brexit guidelines to the EU27.
In line with this view, Barclays targets GBP/USD at 1.30, 1.31, and 1.32 by the end of Q2, Q3, and Q4 respectively.
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