Forex Flash: White smoke over Westminster? - Societe Generale

Kit Juckes, Global Head of Currency Strategy at Societe Generale recalls that the outgoing pope was affable, down to earth, funny, and enjoyed his Bavarian food. This is how his family saw them during decades of interaction. However, many see him in a completely different light and in this sense context matters He writes, “Moving from one to the other is the equivalent of a change in regime. GBP is a typical example of this.”

Juckes notes that he had previously argued that it was far easier to be short GBPUSD than EURUSD with the reasoning by now well established. However, he notes that UK economic surprises are at almost their most negative level ever suggesting we are closer to a turning point. He comments, “Surely Carney will do what must be done to ease so that event is yet to happen. The question is how far we could run to the topside in EURGBP before it peaks.”

From a valuation point of view, he feels that the market is unsurprisingly getting to extremes as is typical in a regime break. The models then tend to follow and lag spot. He writes, “More importantly, we moved to the more extreme range based on long-term valuations. The odds are therefore that selling topside in EURGBP vs maintaining downside positions in EURUSD may prove an interesting trade.”