Everyone is Afraid of the Brexit, But the Pound isn’t

Capital markets are once again focused on the Brexit. Attention to this issue was revived by Theresa May, the British Prime Minister, who spoke a lot about the Brexit last week in Florence, Italy. Many things she said made investors if not seriously consider the situation, then take risks into account in the long-term.

May confirmed that the United Kingdom would exit the European Union in March 2019, just as it had been planned, but the country would require two more years to transform the general legislation into the individual one taking into account its own requirements relating to changing standards and conditions without sacrificing international rules. London has already faced problems with implementation and now it’s quite clear that the process won’t be very quick because no one is experienced enough for this.

The United Kingdom will fulfill its budgetary commitments that were undertaken when the country was interested in cooperation with the European Union and try to find the most convenient way of dealing with the Union in the future. Over and over again, London is sending the EU a message that it is ready to make arrangements and continue the Brexit negotiations, but the Union is behaving as though it listens but doesn’t hear.

When it comes to the Brexit, Europe is holding the following position: you decided to exit, you pay; if you decide to stay, you pay. The United Kingdom is ready to pay for its citizens’ decision, but the money the EU wants is too big. For instance, it’s still not quite clear how the UK and the EU are going to trade when the economies divide. Amounts of fees and how these fees will be calculated are also unknown. The boundaries of financial and credit relations aren’t defined. All these factors force the EU to take a long break to think about its priorities, although the time is running out.

Meanwhile, no “corporate panic” is seen in the British statistics. There are some signs of slower capital movements on factories and enterprises due to optimization of orders and goods at stocks, but right now the strategic outlook doesn’t really frighten many people. The British Pound sank a bit when investors started analyzing May’s speech, but this correction didn’t take much time. Domestic statistics and assurance of the British government that everything is going well, although slowly, provides support to the Pound.

GBP/USD Daily Chart
GBP/USD Daily Chart

The technical picture of the Pound movement against other global currencies may be seen on the GBP/USD pair chart. The instrument is growing inside the uptrend channel; it has tested the channel’s upside border, which means that it may start a new correction very soon. The targets of this correction may be close to the downside border at 1.3070. We should also note the level of the previous fractal resistance at 1.3270, which may be the short-term target of this correction as well. Also, the pair may break the current resistance level. If the price breaks the local high and fixes above the resistance level, “bulls” will push the Pound towards the psychologically-crucial level at 1.4000. But the more “ambitious” upside target may be at 1.4550.

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Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex bears no responsibility for trading results based on trading recommendations described in these analytical reviews.