British Pound

The Pound Relies on Theresa May

The British Pound is recovering, but right now it’s hard to tell how fast the correction will be. There are still a lot of speculations around Theresa May, the British Prime Minister and the key player in the Brexit procedure, but not as many as earlier. The reason why the Pound plummeted last week was investors’ fears that Theresa May may be forced to resign from her position and leave the Brexit negotiations in the care of her party fellows. The story is not over yet.

In the beginning, everything was pretty quiet. The Conservative party had its conference in early October, where they made very clear why the party was not satisfied with the United Kingdom’s stance of the Brexit procedure. Theresa May tried to reply to this challenge, but her attempts “went down in flames”: her speech wasn’t very convincing and resulted in more sales for the Pound. Taking into account all possible peculiarities and nuances of the procedure, the Brexit is 18 months away, but this time is barely enough to make a new legislation. If May resigns in the midway of the Brexit and the European Union has to deal with new representatives of the UK, no one can guarantee that they will be able to continue the current negotiations instead of starting new ones.

At the moment, there are four possible scenarios. The first scenario, a neutral one, implies that May keeps the position and tries to enhance her stature and reputation, which has been imploded a lot recently. The second scenario suggests that May resigns from the position. It will make a fuss among British politicians, who want to take charge of the Brexit procedure, and while they are “fighting for the chair”, the negotiations stop. Europe will be disappointed and the Pound will plummet. According to the third scenario, May resigns, but hands over her powers to David Davis, the Secretary of State for Exiting the European Union. Davis is a persistent person and knows the process from A to Z – he will not “scare” Europe and may “release” some pressure from the Pound. And the fourth scenario. The British Labor Party takes over and drags out the negotiations only because they want to use the Brexit to gain as much as possible out of it. In this case, the national currency will fall.

As a result, it would be better for the currency market to get off the May’s back. That way, the Pound may be stable on the inside and stop being so volatile at the outside.

The long-term scenario for the GBP/USD pair is still “bullish”. After failing to reach its “bottom” and the support level at 1.30 earlier, the price is trying to reverse. The local resistance is at 1.3657. The upside target is at 1.40, but the instrument may try to grow and reach 1.4390.

GBP/USD Daily Chart
GBP/USD Daily Chart

From the point of view of technical analysis, the short-term scenario implies that the pair may test the upside border of the descending channel and grow to reach 1.3325. After the uptrend becomes more stable, the price may continue moving upwards with the target at 1.3515.

GBP/USD 4H Chart
GBP/USD 4H Chart

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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.