Brexit status: … it’s complicated

Marius Paun | London, UK | Senior dealer | Friday, 30th August 2019

It is widely agreed that the pound sterling volatility remains closely linked to the developments on the Brexit front. Recently, events have escalated when British Prime Minister Boris Johnson successfully prorogued Parliament (shut down). The Queen approved the suspension which is supposed to happen between 9th and 12th of September.

Knowing they only have a small window of opportunity to react before the scheduled recess, UK Parliament returned on Tuesday ramping up efforts to block a no-deal Brexit amid talks of a no-confidence vote. In the process, they’ve been trying to extend the October 31stdeadline. To complicate matters further, PM Johnson’s government lost their slim majority in Parliament when Philip Lee left his party to join the Liberal Democrats.

Unsurprisingly, Labour and Tory rebel MPs joined hands and voted on a bill which ceded control of the Brexit timetable back to the House of Commons’ now dominated by Remainers. Boris Johnson was quick to react and said the current position does not allow him to negotiate with EU leaders. After all what chances would one have in successfully negotiating a good deal if the other side knows a ‘no-deal’ is off the table? Would they make any compromise? Why would they?

So, as things stand, it seems we’re heading for another election? Not that easy. Yes, PM Johnson promised to forward a motion calling for a snap general election on 14th of October but he would need two-thirds of MPs to back his motion. If not, he needs to find another way, such as calling for a motion of no confidence in himself… If successful, this would be the third time that a vote, somehow linked to Brexit, has been put to the people, in less than 4 years. Of course, some would find it outrageous to deny the country an election, given Labour and/or Remainers calls for a second referendum.

On another note, UK consumer confidence took a hit to a six-year low, the data revealed last week. Again, the prospect of a ‘no deal’ Brexit was blamed as the culprit for negative outlook in households’ finances.

It is true to say that Brexit remains a complicated affair! We’re no closer now to settle the issue, after more than 3 years since the referendum. From the EU side, the chances of them stepping in and saying yay or nay are very slim. EU seem perfectly happy to watch UK politicians cannibalising themselves.  They will be hoping the subject will drag on long enough to drain the last bit of energy out of everyone involved until, out of exhaustion, the whole idea will be abandoned.

Let’s see what the GBPUSD chart is telling us.

The long-term trend is intact, pointing to the downside.

Bearish scenario:

Since end of July we could see consolidation forming. After touching a recent low of 1.2014 on August 12 the GBPUSD rebounded nicely to 1.23 and it seemed the turnaround could be underway as shown by the red trendline. But then bears got back in control and the downtrend resumed. The price crossed below the 9 and 21-day moving averages giving the bearish signal. Additionally, the 9-day MA moved below 21-day MA, raising further alarm bells.

What’s more, yesterday support around 1.2014 mark, last touched on August 12, was broken. It continued to drop, stopping just above 1.1950 level which acted as support at the end of 2016. It closed the day on a strong note so the sell-off was not confirmed, but any fresh dips below 1.20 could firmly re-establish bears’ control of the long-term trend.

Bullish scenario:

Yesterday low (1.1957) was again good support, attracting enough buyers to trigger a push back up. The immediate question for the bulls is whether resistance at 1.2180 can be successfully broken (confirmed by a close above it). That’s where the moving averages seem to converge and a daily cross above them would offer further hopes to buyers.

But to talk about a bullish short-term trend the price needs to break above 1.2295. Next resistance can be seen at 1.2390. If that fails to happen then it’s consolidation between 1.1957 and 1.23.