On the morning of June 23rd 2016, the GBP/USD posted a high of 1.5015 early in the London session. But this was no ordinary trading day in the “Old Dart.”
No … June 23rd was the day that the citizens of the UK went to the polls to vote on whether to remain in the European Union (EU), or to break away from Brussels and forge trade agreements independently.
Very few market commentators predicted that the majority of voters would choose to leave the EU. Further, Forex traders were quick to hammer the Sterling as the poll results trickled in and the GBP/USD closed 12% lower on the day at 1.3225.
Since June of 2016, the GBP/USD has not traded anywhere near the 1.50 handle and even experienced a Brexit related “flash crash” two years ago which reached as low as 1.1500, which is over 23% lower than where the pair was trading before the UK referendum.
There are few doubts in the Forex community that the lengthy negotiations related to passing Article 50, the Irish border and terms of trade in the Withdraw Agreement have been an absolute fiasco, which has largely been negative for the Sterling.
The condensed version of the Brexit negotiations now looks something like this:
The EC and UK are exchanging ideas on an annex which is expected to be completed in just over a week, followed by a Parliamentary vote on March 12th. If the annex is voted down, there will be a vote on the 13th on leaving the EU without a deal, which a growing number of Tory MPs believe is better than the current Withdraw agreement.
If this idea is rejected, there will be another vote on the 14th for a formal extension to the “hard exit” date of March 29th, which would then be finalised by March 22nd. In addition, there are also some Labour MPs who are now floating the idea of a second referendum to re-clarify the wishes of the UK citizenry.
Confused? … you’re not alone. What is clear is that over the last 2 weeks the GBP/USD has rallied over 4.5% to an eight month high of 1.3350 and the GBP versus the EUR is trading at its strongest levels in over 18 months.
It seems the Forex market considers an extension of the Brexit date as a net positive for the Sterling. There are a few threads of logic here as an extension, which is closer to the EU elections in May, would certainly put pressure on the EC to go back to the negotiation table with Ms May.
However, we expect to see some of the technical limits to the topside of the GBP/USD rally to come into play over the near-term. Our suggestion to sell GBP/USD at 1.3195 was filled and then stopped out at 1.3260 for a 65 point loss. We suggest short-term traders can look to sell GBP/USD at 1.3225 ON STOP, with an initial target of 1.3030 and a 1.3365 stop.
The EUR/USD was able to trade above 1.1400 for the first time in two weeks as option related buying supported the single currency in front of next week’s ECB meeting. We will focus more on the ECB meeting prior to March 7th. Our trade suggestions to sell EUR/USD at 1.1410 was filled, which lowers our short position to 1.1445.
We suggest holding short from 1.1445, or better, with an initial target of 1.1140 and a 1.1560 stop.
The Aussie dollar is pretty much unchanged for the week despite pushing the .7200 level after the Quarterly CAPEX data stemmed its year long slide. Technically, today is the first day in eight sessions that the AUD/USD has not crossed the 30-day moving average. If the pair ends the NY session below .7140, it will be the third consecutive weekly close and point to lower levels next week.
Our trade suggestion to sell at .7235 was not filled, which leaves us short from .7175. We suggest holding short from .7175 with an initial target of .6960 and a .7275 stop.
The USD/JPY has traded to a new high for the year near 111.90 during today’s Asian session. The combination of stable global equity markets and weakening Japanese data has lifted the pair over 150 points during the last two trading days.
Our short position from 110.40 was stopped out at 111.65 for a 125 point loss. With the Daily RSI approaching 70.00 and solid resistance at 112.50, we suggest short-term traders can try the short side again and sell the pair at 112.40, with an initial target of 109.80 and a 113.35 stop.
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