Brexit vote – possible influence on British pound - 04/01/2019

Micro Analysis

04 January, 2019

For General Information only. Not Intended to Provide Trading or Investment Advice. Your Capital is at Risk.

Fundamental overview: Since 2019 has begun, the time for achieving a Brexit deal is diminishing. On December 11, 2018, members of Parliament were due to vote for the deal that Prime Minister Theresa May agreed with EU officials. However, stiff opposition to her plan exists, even among members of her Conservative party. MP from the Conservative party even initiated a vote of confidence that PM May managed to survive. But a poll of 1,215 Tory Party members, carried out in late December, found that Theresa May Brexit plan is not supported by majority of the Conservative party.

Since the middle of December, Theresa May is trying to persuade the British public that her plan is only viable plan that can ensure an orderly Brexit. However, the opposition Labor party is firmly against the plan, as are a considerable number of members of the Conservative party.

If the government does not pass the Brexit deal, the UK could leave European Union in a no deal Brexit. The Bank of England issued a warning that a hard Brexit could have worse consequences to the UK economy than the financial crisis in 2008. Additionally, the same institution also forecast negative pressure on the UK pound.

UK also has option to unanimously revoke article 50 which will mean that Brexit process is terminated and the UK would remain in the EU. Before this could happen it is highly likely that a second referendum would need to be organized. Although at this point this does not seem like a likely option, such a scenario cannot be excluded.

Technical Overview GBP/USD:

Recent price movements of GBP/USD currency pair exhibits a strong downward trading channel. The bottom line of the channel was touched on January 2, 2019 when the price was 1.2421. Since that date, the price of this currency pair is recovering. If that recovery prevails the price could go to resistance 1 level of 1.28090. The price is currently above SMA 20 and MACD, RSI and stochastic oscillator also indicates an uptrend.

Alternative scenario is that this is a short term correction and that pressure on the British pound could persist. In that case the price of this currency pair could test the support 1 level of 1.25084.


GBP/USD Daily

Current Price:

1.26729

Resistance 3:

1.31679

Resistance 2:

1.29801

Resistance 1:

1.28090

Support 1:

1.25084

Support 2:

1.23830

Support 3:

1.22380

Technical Overview EUR/GBP:

On the daily graph it is observable that this currency pair is in an upward trend. On January 2, 2019 the price of this currency pair touched the level of 0.91004 which was its highest value since August 2018. After this date, the price of this currency pair retreated. At this point the price is testing SMA20. If the price falls below SMA 20, then support 1 of 0.89180 could be tested. MACD and RSI indicators support this scenario.

Alternative scenario indicates that current price fall is a short term correction and that in the medium to long term, the price of this currency pair could continue to go up. If that occurs Resistance 1 of 0.90992 could be tested. This outcome is currently supported by the fact that the price is above SMA 20 and SMA 100.


EUR/GBP Daily

Current Price:

0.90019

Resistance 3:

0.92670

Resistance 2:

0.91840

Resistance 1:

0.90992

Support 1:

0.89180

Support 2:

0.88350

Support 3:

0.87440

Technical Overview GBP/JPY:

Since the beginning of 2019, the price of this currency pair touched its lowest level since the second half of 2016. Since then, the price of this currency pair began to recover. If the price continues to recover, the next level to be tested could be Resistance 1 of 140.220. The fact that RSI, MACD and Stochastic oscillators are in deep oversold territory supports this price movement.

Alternative scenario however suggests that the price is deep below 20,60,100 SMA, which is sign of a downtrend. If the recent recovery proves to be just a technical correction, the price of this currency pair could drop to support 1 level of 133.057.


GBP/JPY Daily

Current Price:

136.771

Resistance 3:

149.198

Resistance 2:

143.650

Resistance 1:

140.220

Support 1:

133.057

Support 2:

129.570

Support 3:

126.140

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