Post-Brexit Europe: A Period of Uncertainty and Opportunity
The ongoing negotiations post-Brexit are poised to present both challenges and opportunities for businesses operating in Europe. Per the full note from Goldman Sachs, the uncertainty stemming from political dynamics and economic adjustments will likely continue to impact investor sentiment and operational strategies across the region. The desk points to the preservation of this uncertainty during Europe's year of elections as a significant driver for market reactions. As we analyze positioning dynamics in EUR/USD and GBP pairs, the market is carefully weighing potential opportunities against the backdrop of ongoing political changes.
What the desk is arguing
The Brexit negotiations mark a critical juncture for Europe, fostering an environment rich in both uncertainty and potential. According to Goldman Sachs, this unpredictability will shape the operational landscape for firms, including their own, as they adjust to the evolving political climate. The desk posits that this environment could lead to notable currency fluctuations, particularly in FX pairs sensitive to geopolitical events.
Amidst these developments, investors should note the focus on trade agreements and regulatory alignments that could emerge from the Brexit discussions, influencing market perceptions. Such negotiations may not only keep volatility alive but could also yield significant investment opportunities for agile traders as states on either side of the negotiation look for clarity in their positions.
Where it sits in our coverage
We have a consensus target for the EUR/USD at 1.075, with a spread that ranges from 1.04 to 1.12. Notable firms in this space include: - JPMorgan: target at 1.10 for Mar26 - BofA: target at 1.04 for Mar26
This view is somewhat aligned with JPMorgan's target while diverging from BofA's more conservative estimate. The desk's outlook leans toward the upper end of the established range, anticipating more bullish signals from forthcoming developments.
How other firms see it
Several institutions echo a similar cautious optimism about the potential for market realignment, with JPMorgan and others expecting upward momentum in the currency pairs as Brexit outcomes unfold. Conversely, BofA remains skeptical, anticipating the persistence of volatility and uncertainty in the near term.
Traders should keep an eye on related pairs like GBP/USD and EUR/GBP, as the ongoing negotiations and outcomes will fundamentally impact their trajectories in the wake of any agreements or standoffs surrounding Brexit dynamics.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Brexit negotiations are expected to continue fostering uncertainty in European markets.
- 02Investment opportunities can arise from the volatility generated by these political dynamics.
- 03Support and resistance levels will be critical as traders navigate the evolving landscape.
- 04Key currency pairs to watch include EUR/USD and GBP/USD.
Market implications
Traders should be vigilant for movements in the EUR/USD as it approaches key levels around 1.075, which could provide insights into broader market sentiment. With no high-impact calendar events on the horizon, positioning ahead of potential trade announcements will be crucial.
Risks to this view
Should a hard Brexit scenario materialize, or if major political disruptions arise, this could lead to a rapid reversal in currency positioning, particularly if markets sense prolonged uncertainty. Such catalysts would have a pronounced impact on volatility expectations.
The two-year negotiation process of Brexit has officially commenced amidst Europe's year of elections, meaning the broader sense of uncertainty that has underpinned much of the region's business operations will continue for the foreseeable future. Richard Gnodde, vice chairman of Goldman Sachs and chief executive officer of Goldman Sachs International, discusses how companies - Goldman Sachs included - are adapting to the political landscape. This podcast was recorded on April 24, 2017.
The information contained in this recording was obtained from publicly available sources and has not been independently verified by Goldman Sachs. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording and any liability as a result of this recording is expressly disclaimed. This recording should not be relied upon to evaluate any potential transaction.
Goldman Sachs is not giving investment advice by means of this recording, and this recording does not establish a client relationship with Goldman Sachs. Copyright 2017 Goldman Sachs. All rights reserved.
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