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EUR/GBP: Volatile and range-bound for a prolonged period - Danske Bank

Analysts at Danske Bank raised EUR/GBP forecast in the short-term but they still see the pair moving to 0.83 in a 6-12M horizon. 

Key Quotes: 

“Today has been an eventful day. The day started with the ruling from the European Court of Justice confirming the UK can unilaterally revoke the Article 50 notification (which started the negotiations officially) without any changes to the existing membership terms. In the afternoon, PM Theresa May announced the Brexit vote, which was scheduled to take place tomorrow night, would be postponed. The reason was that May was set to suffer a heavy defeat, as around 420 members of parliament would have rejected the deal according to media reports.”

“Close to 21 January seems like the earliest date for a vote, at the time of writing. Donald Tusk tweeted the EU27 leaders will discuss Brexit on Thursday to “discuss how to facilitate UK ratification” but that the EU “will not renegotiate the deal, including the backstop”. What will happen from here? Well, basically things have not changed much from our preview released on Sunday, as she would have most likely lost the vote anyway.”

“While the probability of a no deal Brexit probably rose again today, the overall probability remains low, in our view, as there is no majority for it in the House of Commons. The probabilities of a Norway-style or second EU referendum have increased.”

“In our main scenario, we still expect a 'decent' Brexit and we maintain the long-held view that EUR/GBP will break lower towards 0.83 when we get more clarification. But as we argued in our preview, Brexit will probably remain unresolved when we enter 2019, which should keep EUR/GBP volatile and range-bound for a prolonged period.”

“On Sunday, we raised our 1M EUR/GBP forecast to 0.88 (from 0.84 previously) and raised our 3M target to 0.87 (previously 0.83), as the big break lower may not materialise in the coming months. We stress, however, that we see risk skewed to the downside relative to our 3M target in case Brexit is finalised within the next three months. We have kept our 6-12M forecast unchanged at 0.83.”

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