First appeared on eFXplus on Jan 08 - 09:20 AM
Societe Generale Research discusses GBP/USD outlook and sees a scope for a strong rally if there is a stream of good Brexit news over the coming weeks.
"FX and 10year nominal yields saw their relationship strengthen again after the first few months of last year. If we took that to heart, all on its own, the conclusion would be that GBP/USD will snap higher if (and it's a huge if), there's any positive news in the days and weeks ahead," SocGen notes.
Bad Brexit' is bad for sterling and for the euro, and hence bad for GBP/USD above all. ‘Less bad Brexit' is good for sterling and the euro and therefore good for GBP/USD. If you bear in mind that GBP/USD averaged 1.58 in the period between 2010 and 2015 (between GFC and the referendum), it's reasonable to suppose that any news which gets GBP/USD to, say, 1.30-1.35, will get it to 1.40-1.45. Not an easy spot trade, but an interesting one in risk reversals," SocGen adds.
Société Générale Research/Market Commentary