Brexit Jitters well and truly kicked in

Posted on Posted in Weekly Analysis

So Brexit fears have well and truly kicked into the market, the recent Bullishness from the Bank of England haven’t given the market much long term confidence and the focus was quickly turned back towards the progress of Brexit negotiations.

So it looks like the UK and EU aren’t just on different pages but on different chapters instead, with no real progress being made and more negative then positive coming out of the EU’s corner in regards to negotiations we have seen the GBP come off much worse. EU chief Barnier has been the main culprit of the negativity towards the UK. He has stated that progress is slow, their will be no expansion to the timeframe for negotiations or a transition deal. In recent weeks we have seen pressure piled upon Theresa May to make progress with this. There is a lot of disagreement in regards to the customs union, trade deals and to sort out an agreement with the Irish border. If she manages to hold on to her job and shake off Corbyn from getting another general election called then her backbenchers will be wanting her to progress and swiftly.

Technical analysis on this pair, we are now trading in a huge bearish trend, after a 1000 pip decline the last few weeks and the Daily RSI is showing we are currently oversold with it being at 27, we have formed a huge lower low and a market correction could be coming soon. We are trading below the 200 Moving average so we could be about to retest it before more downside should Brexit negotiations make no progress. The 200 MA and the last monthly support which has been broken is at 147.50 – should we go past that then we could go up higher to retest the strong weekly trendline we have broken from its lows in 2016. Further downside targets could be 143.50 as next level of major support. And also the monthly S1 is currently there.

So whats needed now for the pound to strengthen?

The BoE could bring forward a rate hike in order to cause some appreciation of the currency. The GBP weakening will not help inflation reduce from 3% to its 2% target, if the GBP does keep weakening then inflation will continue to rise.  The BoE actions I feel will only cause short term relief on the GBP though, to get the GBP rallying longer term, Theresa May needs to secure a Brexit deal with the EU that the market will like (a hard deal is less favourable to the GBP then the EU) and begin to secure trade deals with the EU and the rest of the world. Only this will give long term investors hope for the future security of the UK.

These sort of negotiations are expected to be tough with plenty of ups and downs, but when Phase 1 of the talks were agreed between the both the GBP flew over 500 pips in a couple of days after this