Brexit 'bargaining stage' now over - Nomura
Jordan Rochester, FX Strategist at Nomura, expects more downside to come in GBP/USD, although he adds that the 'bargaining stage' is now over.
Key Quotes
The Kübler-Ross model, better known as the “five stages of grief”, explains a series of emotions experienced after a death or a personal loss. They are known as denial, anger, bargaining, depression and acceptance. Kübler-Ross also noted that the stages are not a linear or predictable progression.
After the UK’s EU referendum result, the nonlinear and unpredictable path of GBP price action certainly fits with such a notion of “Brexit grief”. There are still some market hopes that “Brexit won’t be such a big deal”. We disagree and the market is now starting to come round to our view.
However, we think there is further to go with some bouts of market “depression” already occurring this week. We expect the political noise to continue to weigh on GBP and interestingly the markets expectation of when Article 50 will be triggered is quite a way out from what we expected.
We expect more of this to come, and we see it reaching 1.26 by end-Q3 and perhaps testing 1.25 as a nearterm bottom. For EUR/GBP we expect 0.85 for Q3 but it is already there. So in the short term we think EUR/GBP overshooting to 0.87 is possible but we prefer expressing the downside GBP view via USD or JPY as we continue to expect EUR to underperform as well.