GBPUSD New Brexit Plan Brings Indecisive Pound Reaction

…But the US dollar’s sudden weakness may cause the cable to rise anyway.

The GBP/USD barely reacted to Boris Johnson when he delivered his new Brexit proposals earlier. Everything the UK Prime Minister said had already been reported in the media. He proposes to ditch Thresa May’s contentious “backstop” arrangement for the Irish border and intends to replace it with a regulatory border in the Irish Sea. This would effectively split Northern Ireland from the rest of the UK, as the former would stay in the European single market for goods but leave the customs union. A plan designed to fail and provide no serious proposals, said the opposition parties in the house. Under the new proposal, they argued, why can Northern Ireland stay in the single market and not Scotland? It seems very likely that the deal will be rejected by parliament as there isn’t enough support from hard-line Eurosceptics. So, the PM will be forced to seek an extension to Brexit, even though he has threatened to break the law and force a no-deal exit. Time is ticking. The uncertainty continues.

The GBP/USD’s price action is mirroring the political uncertainty hanging over the markets. Over the past four days (today included), the cable has displayed as many doji candles on the daily chart. These candles are formed when the opening and closing prices are roughly equal, with wicks in either direction – suggesting that neither the bulls nor the bears are in full control of price action. The current indecisiveness suggests a sizeable move is upon us once either the bulls or bears are defeated. Overall, I am leaning slightly towards the bullish side given the reaction of the US dollar this week. So, I would not be surprised if the cable were to rise from here and stage a short squeeze rally – despite the ongoing Brexit uncertainty.

Source: eSignal and City Index.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.