Sunday, 7 April 2019

RISK OF A NO-DEAL BREXIT DANGEROUSLY UNDERPRICED

pound notes
Written by: Lukman Otunuga, FXTM Research Analyst 
The British Pound performed unexpectedly well during the first quarter of 2019 despite the chronic uncertainty, growing confusion and chaos revolving around Brexit. http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html

Much of the positivity seen in the Pound has been encouraged by expectations that the United Kingdom is heading for a softer Brexit, a potential second referendum or, as some optimists would like to believe, no Brexit at all.

Investors guilty of complacency regarding no-deal Brexit risks
Given that at time of writing there have been multiple defeats and rejections of UK Prime Minister Theresa May’s Brexit deal, and that the latest headline from the EU Commission is that a no-deal Brexit on April 12 is “likely”, the upside in recent months for the Pound has been a mystery for most traders. http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html

Market participants need to be aware of the risks over market complacency with Brexit uncertainty, because investors do not look like they are positioned at all for no-deal Brexit risks, or a disorderly Brexit. http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html In the event that United Kingdom politicians are able to miraculously agree between themselves a new Brexit agreement before the April 12 deadline at time of writing, further upside in the GBPUSD is likely limited to between 1.34 and 1.36.

However, the unexpected occurring and the risk of traders getting nervous on the edge of their seats over a no-deal Brexit holds the potential to suddenly send the GBPUSD to 1.25, if not lower.

Brexit uncertainty to remain the name of the game
The third rejection by the House of Commons on Theresa May’s Brexit deal has created another element of uncertainty and confusion at a critical period where investors are scrambling for clarity on Brexit. http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html The United Kingdom now only has until April 12 to come up with an alternative plan, otherwise fears of a no-deal Brexit are set to rise in the foreign exchange markets. Will there be a second referendum, a general election, or even perhaps a longer delay to Brexit? Or, will the UK end up crashing out of the European Union without a deal in place? Where we go from here remains an open question, and this endless uncertainty should weigh on sentiment for the Sterling.

GBPUSD searching for catalyst to make next major move
In regards to the technical picture, the GBPUSD is trading within a range on the monthly timeframe, with support found at 1.3000 and resistance at 1.3300. Although prices have breached the bearish channel, the downside is likely to resume if a monthly close below 1.3000 is achieved. Sustained weakness below this level would likely threaten opening a path towards 1.2820 and 1.2700, respectively.

In the event of a no-deal Brexit, the Sterling has the potential to tumble towards 1.2400, possibly even lower if investors panic.  http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html The weekly timeframe paints a similar picture to the monthly timeframe that 1.30 is a critical level for the Pound.  For bullish sentiment to jump firmly back into the game, a decisive monthly close above 1.3350 would be encouraging for potential buyers. Such a move would likely open the doors towards 1.3470 and 1.3630.

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