Brexit: Deal or No Deal? Investors wait with bated breath
Last Thursday, market rejoiced after the Irish Taoiseach and the UK PM spotted a ‘pathway’ to a Brexit deal. In the following 48 hours after their meeting, Pound Sterling soared. After the weekend, however, cooler heads returned.
First, the EU is ‘puzzled’ by UK’s offer. Second, the DUP is expressing reservations about the deal. And everyone says that the construction of a deal before the EU summit will be very tight.
Hence the pullback in Sterling on Monday morning. If UK fails to clinch a deal by the end of this week, Sterling is likely to consolidate further.
Sterling rallies on hopes of a Brexit deal
Against the Euro, for example, a return to the prior trading range at 1.110-1.130 is possible (see Featured Chart). Meanwhile, Cable is likely to range in the vicinity of 1.250 (see below).
At this point, it is clear the Sterling is completely dominated by one factor only – Brexit. Macro data is secondary. Technically, Sterling appears to have completed a base formation in most pairs. Hence, the default view is the UK will either get a deal this week or the PM will have to seek an extension.
Euro – A turnaround?
Another currency trying to complete a base pattern is the Euro. The Eurozone currency has had a tough time since the beginning of 2018. The powerhouse of the Eurozone – Germany – has slipped into an economic slowdown.
As a result, the Euro kept sliding against other major currencies. But over the last few weeks, a rebound is spotted. For example, versus the Japanese Yen, I note a downside failure at 117.0. This is the first downside failure in months, suggesting that buyers are drawing in. A break above 120 will confirm a base breakout.
Chinese Yuan rebounds – Tariffs War coming to an end?
Lastly, I draw readers’ attention to the Chinese Yuan against the USD. This currency often gives you clues about the direction of Tariffs War.
The last week saw the CNY strengthen markedly against the USD (see below). This means that the Chinese central bank (PBOC) is more confident about economy. This is based on hopes of a limited Sino-US Tariff War.
The lower low beneath the 50-day moving average here could be a significant technical change of trend. I anticipate more strengthening of the Yuan into 7.
Jackson has over 15 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world’s largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.