GBP takes flight despite the mess that is UK politics

2019年1月16日

Trade setup - Price is telling us the market has reduced the worse-case scenario hedges, and we still like GBP longs from here. We like GBP too versus the EUR and CHF, but most of the flow remains in GBPUSD. The preference for cable is to stay long into 1.2990/1.3000, with stops below 1.2820, which as we can see is the downtrend drawn from the September high, as well as the top of the bullish channel. Price is currently holding the 5-day EMA, so we see risks it trades in 1.3000 in the short-term. That said, we expect sellers to kick in here and price to reverse into 1.2950/20, notably, with various oscillators at extreme reads. But, again that should be a buying opportunity. The view is that GBPUSD will be higher in the medium-term, but the risk-reward suggests moves into 1.3000 will be tough going for the GBP bulls.

Why we like it - GBP is holding up well despite the massive rejection by the Commons of UK PM Theresa May’s Brexit deal. Clearly, the vote was priced in and we saw a classic sell the rumour, buy the fact scenario play out. Jeremy Corbyn’s move to pull a vote of no-confidence on the Tory government also failed to play out, and again the market expected this outcome.
As we an clearly see on the daily, the market has priced out the prospect of a no-deal Brexit, and while this seems somewhat premature, the political will from the majority of MPs to avoid this scenario seem clear. The question is where to from here?
Tactically, there are risks of a small upside tick in the EUR with the ECB monetary policy statement coming later today, but we don't see Draghi changing his trajectory when it comes to QE and policy. With that in mind, any rallies are a selling opportunity as we ride the trend and leverage to elevated volatility.

Disclaimer.
Trading leveraged products carries a high level of risk and may result in you losing substantially more than your initial investment. Pepperstone Group Limited is licensed and regulated by the Australian Securities and Investments Commission (AFSL 414530). Pepperstone Limited is authorised and regulated by the United Kingdom Financial Conduct Authority (FRN 684312). This information 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.