GBPUSD: Is the worst behind us? - SocGen

The research team at Societe Generale explains that the   options   market   is   seeing   a   wave   of   unwinding   of   medium-term   bearish   puts   after the UK PM May announce a snap general elections in June as   the   1y   GBP/USD   risk reversal   has   softened   to   its   lowest   level   since   end-2015.  

Key Quotes

“Prime minister   May   surprised   the   market   by   calling   for   a   snap   general   election   on      June.   The   possibility   of a   hard   Brexit   has already   been   discounted   by   the   market,   but   the   larger   parliamentary   majority   currently implied   by   the   polls   chart   below   would   strengthen   the      governments   negotiating   position   domestically. The   market   is   now   assigning   better   odds   to   a   post-Brexit   E-   trade   agreement,   and   thus   the   worst   may be   behind   us   and   cable   short   covering   may   just   be   starting.”

Positions   set   to   shift 

The   options   market   is   seeing   a   wave   of   unwinding   of   medium-term   bearish   puts   as   the   1y   GBP/USD   risk reversal   has   softened   to   its   lowest   level   since   end-2015.   Risk   reversals   have   led   the   spot   positioning   in   the past,   and   the   latter   is   still   exhibiting   extreme   shorts.”

Milder   economic   impact 

The   freshly   released   IMF   WEO   now   forecasts      growth   of   2.0   this   year,   upgrading the   January   forecast by   0.5.   This   reverses   nearly   all   of   the   downgrade   it   pencilled   in   after   last   summer’s   Brexit   vote   1.1   was forecasted   in   October.”

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