Brexit and what may be next for Sterling

GBPUSD, Weekly

The EU-27 approved a deal on the UK’s divorcing terms and future relations (the latter or which has been left sketchy and subject to a lot of further debate in a transition period), stating that it is the “best and only deal possible,” and would pave the way to an “orderly withdrawal.” UK Prime Minister May is now trying to sell it to parliament and to the public, warning that rejecting it would lead to “division and uncertainty.” The problem is that it remains highly unpopular, with both Eurosceptic “Leavers” (the so-called Brexiteers) and Europhile “Remainers” united in calling it a “worst-of-both-worlds” deal. For Brexiteers, the principal concern is the UK could be trapped indefinitely in the backstop customs arrangement, which is a guarantee that the border on the island of Ireland remains free flowing and open, while for Remainers, the principal argument is that the deal is inferior to remaining in the EU as trade won’t be frictionless. And both Brexiteers and Remains don’t like the fact that the UK will have to abide by rules and regulations set by the EU without having a say in them. Parliament is likely to vote on December 12, and the debate over the next two weeks will be intense. Should the vote fail, the most likely scenario will be that the government will return the issue back to the people, with either a general election or a new referendum.

The numbers and possible options on both sides of the argument is nicely illustrated below by the BBC.

As ever, with Brexit uncertainty, the outcome is “pressure on the pound” a phrase I have used more times than I care to remember since the Referendum vote in June 2016. Technically, Sterling remains below the key 20-day moving average against all its major trading partners. 

In the higher time-frames, GBPUSD has the 2018 summer low of 1.2715-1.2655 zone as support, below which is the psychological 1.2500, which was last tested back in April 2017. Resistance is the recent high at 1.3150, the weekly 20-period moving average at 1.3300 and the 200 period moving average at 1.3800. The 2018 high was posted April 17 at 1.4376.


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Stuart Cowell

Head Market Analyst


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