GBP/USD rallied hard on the elections announcement (see five reasons). After hitting a swing high of 1.2905, the pair went into consolidation mode. What’s next? Here are three opinions:
Here is their view, courtesy of eFXnews:
GBP: Bounce More Than Just A Position Squeeze; Towards 1.30-135 Range – BTMU
BTMU FX Strategy Research argues that the GBP bounce in reaction to the UK snap elections will prove more sustainable and is more than just a position squeeze in a continued GBP bear market.
In particular, BTMU argues that this decision will in fact shift the markets’ focus away from the probability of a ‘Hard Brexit’ and an easing of those concerns can propel the pound further higher.
“If our interpretation is correct, the reasons for buying the pound are even more compelling. This snap election would therefore mean that the UK government is in fact shifting to a more balanced approach in regard to Brexit and not to the ‘Hard Brexit’ stance many are currently citing for the government’s reason for calling this election,” BTMU argues.
As such, BTMU suspects the calling of this election will slowly see this conclusion shift and the consequence of that should be GBP/USD moving back into the 1.3000-1.3500 trading range.
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GBP: How Far Can GBP Rally Go? How To Play It? – Credit Agricole
Credit Agricole FX Strategy Research outlines its outlook and strategy for the GBP following its rally on the back of yesterday’s announcement from PM May of a snap general election on the 8th June.
CACIB argues that while the snap UK election is likely allow PM May to push for her own, more moderate, vision of Brexit, the EU is likely to stick to a tough negotiation strategy in order to discourage other EU exits.
In addition, CACIB argues that the UK domestic political uncertainty is likely to rise due to the uncertain outcome of the election and increasing chance of a second Scottish referendum.
On the data front, CACIB expects the UK data fundamentals to take a turn for the worse, discouraging the BoE from any thoughts of a rate hike.
What does this mean for GBP?
CACIB argues that believes there is only limited room for more sustained currency upside from the current levels.
“In the short run we consider that much of the GBP’s rally is due to a short-positioning squeeze, and there will be opportunities to re-sell the GBP once positioning is more balanced,” CACIB advises.
GBP: Towards A More ‘Decent’ Brexit But A Lasting GBP Recovery Still Far Away – Danske
Danske Bank FX Strategy Research expects UK Prime Minister Theresa May to stay in power after the snap general election on the 8th June and to receive the more broad-based backing she is seeking heading into the autumn negotiations on Brexit.
In particular, Danske’s base case is that PM May will be able to negotiate a ‘decent’ Brexit that is ‘neither too hard nor too soft’.
What does this mean for EUR/GBP?
“In our main scenario that May stays in power, we envisage that EUR/GBP will be in for a move higher again post a June election to around the 0.86. In this outcome, we look for EUR/GBP to be range-bound for an extended period, trading in the 0.84-0.88 interval over the coming year, and we do not expect the undervalued pound to fight back against the euro to any great extent on a 12M horizon,” Danske argues.
As such, Danske adopted a flat forecast profile, seeing EUR/GBP trading around 0.86 level on a 1-12M horizon.
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