The pound crawls as uncertainty increases
Sterling has steadied below 2019 highs but last night’s optimistic pace has slowed to a crawl as the week’s third vote looms. If anything, outcomes are becoming even less certain for four key reasons.
- Some senior EU officials are dropping barely veiled signals about a “long extension”. The type that could pave the way for the UK to remain within the union
- Such comments could deter pro-Brexit MPs from opting for a short A50 delay tonight
- Amendments linked to tonight’s votes far outnumber those in recent Brexit votes, increasing complexity
- A reported push by some MPs to instigate ‘indicative votes’—which would have at least improved visibility somewhat—hasn’t materialised. The government neutralised this initiative by offering indicative votes if Brexit is delayed by more than a few months.
As such, nine-month highs for sterling against the dollar and almost two-year highs versus euro look to have priced soft Brexit prospects completely, for now. The cost of sterling options is elevated from 24-hour trades up to those lasting about month. In other words, markets are short-term nervy, medium-term relaxed; which isn’t sustainable.
From a chart perspective, sterling bulls have capitalised on the wait for tonight:
- Despite evident volatility, a revealing GBP/USD minor trend line is intact
- A fracture would signal trouble for buyers
- Fine oscillators are inching towards a positive bias
- But sentiment is fragile: $1.3340 could easily cap without fresh impetus
- Bears would re-take control below $1.296
Price chart: sterling/U.S. dollar – hourly [14/03/2019 15:30:50]
Source: Refinitiv/City Index
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.