Brexit has been a major political and economical theme for the past 3 years now and the least we could say is uncertainty regarding the outcome is higher than ever. More recently, the country has even entered into a political chaos situation following PM Theresa May’s resignation, after more than 2 years fighting to reach a fair deal with the EU.
Now the race to the Prime Minister title is officially opened and many, with all different views over the Brexit, want to put their name on the list. Pound traders have even been under pressure after Boris Johnson gained momentum these past few days, reviving the spectrum of a no-deal Brexit.
Among the few things that investors hate towards the markets they trade, there is uncertainty. Traders usually try to avoid an asset class subject to a lack of visibility on both short and long-term view and this situation can be seen on GBP markets quite clearly.
A silent technical landscape
GBP: It is a fact the Pound Sterling declined significantly during the past three year :
- GBPUSD -14.50%
- GBPJPY -12.55%
- EURGBP +16.22%
- FTSE-100 +23.67%
However, the most of these slide has been registered on the day of the 2016 Brexit referendum. Since then, the volatility came down as traders flew the uncertainty surrounding the future of the U.K.
GBPUSD, weekly candlestick chart
- The market has been registering lower highs and higher lows for the past three years; the long-term trend is neutral as prices remain in their consolidation zone.
- More recently, the market reacted positively to a 5th impact over its bullish dynamic support line. The RSI indicator shows an oversold situation and a bullish divergence.
- There is no sign of a break-out to come and the 1.2550 level remains well defended by Bulls.. However, prices will have to clear the 1.2870 zone to trigger a new rally to 1.3170 / 1.3400 and 1.3620.
GBPJPY, Weekly candlestick
– Similar technical configuration to the GBPUSD chart. The market is still trading inside a consolidation pattern since the 2016 referendum. The Long-term trend is neutral.
– Prices started trading inside a bearish channel since the beginning of 2018. The DMI indicator shows a bearish pressure but a clear lack of direction as well.
– No clear signal given. The market is far away from its first support and resistance levels.
EURGBP, Weekly candlestick chart
– This chart perfectly describes the state of an uncertain market. Both Europe and the UK have the same interest in this Brexit case, it is then normal to see the two different currencies going in the same direction. The market trades sideways between 0.9260 and 0.8300 since June 2016, the long term-trend is neutral.
– Prices are now right below the upper band of their bearish channel registered during summer 2017.The RSI indicator does not show any sign of a break-out to come.
– As long as the market will keep on trading below 0.8900, the probability for prices to comeback towards 0.8655 will remain high.
Footsie-100 index, Weekly candlestick chart
– The market is trading inside a bullish channel since 2014, the long-term trend is bullish.
– Prices have entered a corrective wave since their impact on the 7,880.0pts level and now trade below a bearish trendline. The market is now challenging this trendline with a strong bullish impulsion in the shape of a piercing price pattern. The Williams %R indicator describes the beginning of an overbought situation.
– According to the technical signs, the market may invalidate the current bearish correction soon but prices will first have to clear the strong 7,500.0pts level to unlock new targets towards 7,523.0pts / 7,730.0pts and 7,880.0pts by extension.
In conclusion, GBP pairs have entered a long consolidation phase following the sell-off that took place on the day of the referendum. The Footsie-100 still benefits from the currency’s devaluation as large exporting group are now more competitive than before. Although GBP pairs’ direction on FX markets remains as unclear as U.K’s outlook, key technical levels seems to be still well defended so far. Investors stand ready to take action as soon as the uncertainty veil vanishes, which could lead to brutal market acceleration.