Is The Pound Now “Predicting” No Brexit?

One of the best and sometimes the worst things about using the charts to trade the markets is that you are effectively shutting down all the fundamentals and the newsflow. A problem also arises when the market gets the fundamentals wrong, as it did with the Pound and at the time of the Brexit vote. Sterling rallied to $1.50 temporarily on the basis that Remain had won – and perhaps because many in the market wanted Remain to win. Since then the rough rule has been more Brexit – sell the Pound, more Remain, buy the Pound.

This pattern has been well followed over the past three years: arguably until now. The impression given in the past couple of weeks is Brexit Deal – buy the Pound, No Deal – sell the Pound. However, the ferocity of the recent rise through the trend changing 200-day moving average is surprising given the way that previously the currency was rocketing on Remain. It is also the case that the “smart money” may be aware that after over 30 years of efforts to keep the UK in Europe, including deposing Mrs Thatcher, it is almost inconceivable that Parliament – which now rules the Government / Executive, is not going to vote in favour of any deal unless it is to Remain. Therefore, conspiracy theorists may suggest that we are not witnessing a Brexit Deal rally, but a Remain one.

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The idea is given further ammunition from the chart and the latest break above the 200 day moving average and a resistance line break at $1.2710 from March. The implication of an end of day close above these two chart features is that we shall be treated to an eventual $1.40 plus target at the top of a December broadening triangle over say, the next 1-2 months. But remember if the chart target is correct, even $1.30 plus would have to be delivered in a Remain scenario. One would imagine it is still the case that if a No Deal Brexit was really delivered as Bluffing Boris has been suggesting, Pound / Dollar would be back at its lows near $1.20 quicker than you can say Jean-Claude Junker.

Author: Zak Mir

Financial commentator, interviewer, technical analyst

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