GBP/USD: SocGen believes that the pound could experience a solid rally on positive news

Societe Generale is forecasting a strong bullish recovery of the GBP/USD if the Brexit news is good over the next few weeks. BNP Paribas already recommends purchases of the British pound.

Societe Generale notes that: "Exchange rates and 10-year nominal yields have seen their relationship tighten after the first months of 2018. If we take this to heart, the conclusion would be that the GBP/USD would appreciate upward if (and it's a huge if), there is positive news in the days and weeks ahead.

A bad Brexit would be bad for the pound sterling and for the euro, and therefore especially for the GBP/USD. A less bad Brexit would be good for the pound sterling and the euro and therefore for the GBP/USD. If you keep in mind that the GBP/USD averaged 1.58 GBP between 2010 and 2015 (between GFC and the referendum), it is reasonable to assume that any news that would push the GBP/USD to 1.30-1.35, for example, will send it to 1.40-1.45. It's not an easy trade, but interesting for risk reversals."

BNP Paribas says it's time to buy the GBP. BNP targets 1.36 on the GBP/USD and 0.8500 on the EUR/GBP. Their basic scenario is a postponement of Article 50 and the organisation of a new referendum.