Delay to Brexit good for British Pound: USD/GBP (GBP=X) in short-term

Delay to Brexit good for British Pound: USD/GBP (GBP=X) in short-term

Delay to Brexit good for British Pound: USD/GBP (GBP=X) in short-term

Pound Sterling is rising on the back of moves by government to ensure parliament is able to say whether they want to leave the EU without a deal or whether they want an extension to Brexit.

The currency pushed to multi-year highs against the Euro and multi-month highs against the U.S. Dollar on Tuesday after Prime Minister Theresa May told parliament that they would be able to vote on her revised Brexit deal by March 13, and if it is rejected they can then vote on whether or not the UK leaves without a deal. If this is rejected, they can vote on extending the Article 50 process and delay Brexit.

This would presumably give the UK and EU more time to explore alternative solutions to contentious sticking points such as the Irish backstop.

The Pound rose to record a new high at 1.1667 against the Euro and 1.3287 against the U.S. Dollar as markets now see a clear and definite path on which parliament can embark to prevent a ‘no deal’ Brexit.

Foreign exchange strategist Rai Bipan with CIBC Capital Markets says he attaches a very low probability (0 to 5%) that May’s Brexit deal will pass, and almost no chance that a ‘no deal’ Brexit passes. “We see only a 10-15% chance overall of a hard Brexit,” says the analyst in a client note. “As such, investors should prepare for an extension to late-June. This introduces near-term upside risks to GBP on the crosses given how under-hedged GBP bears.”

But, when it comes to an extension, we are told the length of the delay could have an important impact on Pound Sterling.

According to analysts at ING Bank, who have conducted an in-depth analysis of two possible deadline extension scenarios, there could be either a short delay of only 2-3 months or a longer delay of 9-12 months or more.

From a currency markets perspective, a delay is good news for Sterling bulls no matter how long it is, but ING suggest a longer delay is preferable to a short delay for the currency.

“GBP rallied to the best levels of the year in January, when the Cooper-Boles amendment held out the prospect of a long delay,” says James Smith and Chris Turner, market strategists at ING bank. “Confirmation of a 9-12 month delay, buying time for alternative policy paths, could trigger 4-5% GBP gains (EUR/GBP to 0.83, GBP/USD to 1.36).”

EUR/GBP at 0.83 gives a Pound-to-Euro exchange rate of 1.2050.

Yet even in the case of a shorter 2-3 month delay, the ING strategists are still bullish the Pound:

Overall, the bias in prices is: Upwards.

By the way, prices are vulnerable to a correction towards 1.30.

The projected upper bound is: 1.35.

The projected lower bound is: 1.31.

The projected closing price is: 1.33.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 7 white candles and 2 black candles for a net of 5 white candles. During the past 50 bars, there have been 27 white candles and 22 black candles for a net of 5 white candles.

Three white candles occurred in the last three days. Although these candles were not big enough to create three white soldiers, the steady upward pattern is bullish.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 88.8648. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a buy 9 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 71.15. This is where it usually tops. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 22 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 180.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 3 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 5 period(s) ago.

Rex Takasugi – TD Profile

FOREX GBP= closed up 0.005 at 1.330. Volume was 4% below average (neutral) and Bollinger Bands were 16% wider than normal.

Open High Low Close Volume___
1.325 1.335 1.323 1.330 176,619

Technical Outlook
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bullish

Moving Averages: 10-period 50-period 200-period
Close: 1.30 1.29 1.30
Volatility: 9 10 10
Volume: 166,015 164,744 178,414

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

FOREX GBP= is currently 2.4% above its 200-period moving average and is in an upward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of GBP= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on GBP= and have had this outlook for the last 2 periods. Our momentum oscillator is currently indicating that GBP= is currently in an overbought condition.

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