Same Old Trading for GBP/USD after Brexit
Joe Perry February 3, 2020 4:23 PM
Today officials from both sides began laying out the groundwork for a new agreement
The Pound had a busy end of January, as the UK gave the markets both the BOE Interest Rate Decision on January 30th and the official departure from the Eurozone on January 31st. On Thursday, the BOE left rates unchanged. The market was pricing in a 50% chance of a rate cut. However, not only did the BOE not cut rates, the 7-2 vote remained the same. This lack of dovishness sent the Pound higher the MPC has decided to wait and see how the economy will run while the Conservatives now have a majority. On Friday, in an unceremonious exit, the UK finally left the EU. This was well known since Boris Johnson won the election in mid-December; however, it does mark the beginning of a new chapter for the UK. In addition, throw in US Dollar selling on Coronavirus fears and month end related GBP buying, and the GBP/USD bid up 200 pips from 1.3000 to 1.3200 over the 2-day period!
However, today is Monday, February 3rd…a new day, a new week, and a new month. Today, officials from both the UK and the EU began laying out what they were looking for in a new agreement which must be finished by the end of year, or else a “Hard Brexit” will occur. Despite the UK posting a 50 Manufacturing PMI for January (revised higher from 49.8 and fist time in expansion territory since April 2019), markets are choosing to focus on opening jabs from both sides regarding negotiating a new partnership. EU’s Brexit negotiator Barnier says he wants to level the playing field before reaching an agreement, while UK’s Johnson said the UK needs to worry about the EU’s adherence to rules and regulations.
The GBP/USD has been in a symmetrical triangle since screaming higher after the election results were announced back on December 13th, 2019. Since the beginning of 2020, the pair has been stuck in a range between 1.2950 and 1.3200. As mentioned earlier, late last week the pair moved higher from 1.3000 to 1.3200 and in doing so, broker higher out of the symmetrical triangle.
Source: Tradingview: City Index
Today, on the morning reopen, price gapped lower, from Friday’s close at 1.3200 down to 1.3176, and has been moving lower since, trading back into the triangle. This created a false breakout of the triangle. GBP/USD is currently down near 1.3000, giving back all of Thursday’s and Friday’s gains. And as is often the case, when there is a false breakout on one side of the triangle, price often will test the other side of the triangle. So, watch for upward sloping bottom trendline of the triangle to be tested near 1.2985. Below that, look for support at the 38.2% Fibonacci retracement level from the September 3rd lows to the December 13th highs to be tested (again) near 1.2925.
Source: Tradingview: City Index
As the year progresses, there will be trash thrown back and forth by negotiators. Markets may become numb some comments and not others. Try to distinguish what’s important and what’s just noise. This may give traders a better understanding on how to trade GBP/USD for the rest of the year!
GAIN Capital UK Limited (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.