Brexit: Where next for markets after cancelled vote fallout?

You can learn to prepare for either Brexit outcome and navigate the volatility of each scenario with XTB’s free guide.

Yesterday saw UK PM May perform a stunning U-turn by announcing at the last minute that a key parliamentary vote on her Brexit deal would be pulled, in a move that sent the pound plunging across the board. It now looks like the PM will try to renegotiate her deal with the EU and in particular push for some concessions on the Irish backstop issue. Economic data has taken a back seat in terms of driving UK assets of late, with the markets growing increasingly sensitive to the latest twists and turns in the ongoing Brexit saga. Here are 3 markets to keep a close eye on going forward:

GBPUSD – Likely bias: Short below 1.2660

The most widely traded GBP pair is an obvious place to start and this market has fallen to a 20 month low after PM May pulled the vote on her Brexit deal. Price has broken below the prior support around 1.2660 and unless this area is reclaimed then there’s scope for further declines. The post-vote low around 1.20 and even lower is possible if negotiations take a turn for the worse and the chances of a no-deal Brexit begin to rise significantly. The market is trading in the red for the 6th week in a row and as you’d expect with a market that is trading near its lowest level of the year there’s plenty of scope for gains should there be a clear positive development with a move towards 1.3310 possible should this occur. Find out more in XTB’s FREE Guide.

GBPJPY – Likely bias: Short below 143.75

This cross experienced larger declines than the more popular GBPUSD following the 2016 referendum with a safe haven flow in the JPY providing a double negative shock to the price. Since then however, the market has fared better and remains a long way above the post-vote low. Taking fibs from this low at 123.00 to the recent swing high of 156.57 can give levels to look for possible support and resistance with the 50% at 139.79 appearing particularly interesting. On the upside the local high coincides with the 38.2% at 143.75 and if price can get above here then larger gains to the 23.6% at 148.65 become possible. Also note that the market is below the 200 day SMA which now has a negative gradient and is indicative of a downtrend. Find out more in XTB’s FREE Guide.

UK100: Likely bias: Long above 6670

Although the UK stock market reached an all-time high of 7885 back in May, it’s been a bad 2018 for the benchmark which has experienced double-digit declines year to date. A decline from peak to trough of 15% means that price remains shy of the 20% needed to fall into bear market territory but whichever way you look at it, the index is in a downtrend. Given that around 75% of the benchmark’s income comes in non-sterling terms, a fall in the pound actually provides a boost to the index, as we saw in the wake of the Brexit referendum once the dust had settled the market embarked on a strong rally. Therefore there is a case to be made that for the index as a whole the best outcome would be a hard Brexit and strong drop in the pound which would see large-weighted sectors such as the Miners and Oil majors surge higher. Lows of 6670 are now a reference point below and with some positive divergence seen on the RSI, if these can hold then a recovery may lie ahead. Find more in XTB’s FREE Guide.

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