The market always lives by expectations…
What awaits the British pound this week?
Information is not investment advice
A very important week for the GBP has started. The currency has already been through much but the situation gets more intense as deadlines approach.
The UK parliament will vote on the last version of Theresa May’s Brexit deal on Tuesday, March 12. The most likely scenario is that British lawmakers reject the solution proposed by the Prime Minister because they want more concessions from the EU. Last week Attorney General Geoffrey Cox and Brexit Secretary Stephen Barclay visited Brussels but failed to achieve progress in the negotiations with the European side. Northern Ireland backstop remains the bone of contention.
At the same time, it’s assumed that even if the members of the parliament say “no” on Tuesday, they will then vote on whether the UK should leave without a deal or not. This will probably happen on Wednesday. If a no-deal Brexit is rejected, then there will be another vote on Thursday, March 14, to request the European Union to delay the nation’s departure from the bloc. As a result, a no-deal Brexit on March 29 will be averted, and Britain will at least buy itself more time. The majority of analysts think that this is what will happen.
On the one hand, the prevention of “bad” Brexit seems like a good thing and should be positive for the pound. However, such a step will definitely prolong the uncertainty about the economic future of the United Kingdom. Given all the time that has already passed, it’s rather hard to imagine that the extension of talks will really bear fruit.
GBP/USD has strengthened since the start of 2019. The pound was one of the biggest gainers among G10 currencies. It rose as the market became optimistic about the Brexit deal pricing in the good outcome. The last week and a half, however, weren’t good for the British currency as traders got more nervous. A bearish engulfing candlestick was formed on the weekly chart as the pair failed to get above the 100-day MA. On the other hand, the sterling got to strong support at 1.30 and 1.29. Here there are the 200-, the 50- and the 100-day MAs and the trendline drawn from the January lows.
According to the opinion poll by Reuters, if Britain leaves the EU without a deal, GBP/USD will quickly plunge to 1.20. Some analysts even speak about the parity level. Still, the majority things that the parties will be able to avoid this dismal outcome and eventually agree on a free trade deal so that the pair will rise to 1.35 within 6 months and 1.39 in a year.
Bloomberg survey of banks shows that if British parliament votes to delay Brexit on Thursday, GBP/USD will get to 1.33. However, the reaction to the upside will likely be short-lived as the fears of uncertainty will make traders sell the GBP at higher levels.
As it always happens volatility will definitely rise during the upcoming important events. There will be a chance to benefit from some really big swings in the GBP exchange rate, although it’s necessary to remember about the proper risk management.
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