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Jignesh Davda

No-Deal Brexit Fears Trigger a Drop Below 1.2000

The British pound fell sharply on Tuesday as investors await the outcome of a vote that stands to have significant repercussions as to how an EU exit might play out.

Lawmakers will try and block UK Prime Minister Boris Johnson by voting to pass legislation that would force the PM to further delay Britain’s exit from the EU.

Johnson has been clear on his stance that he will seek to deliver an exit by October 31 no matter what it takes. That includes leaving without a deal in place. He has argued that Parliament is undermining his efforts. He stated that Parliament’s actions might lead EU officials to believe Brexit will be delayed or canceled altogether, which puts him in a weak negotiating position.

Volatility in the Sterling exchange rate is like to remain heightened during this process. Lawmakers will put forward a vote today to allow them to take control of the parliamentary agenda for tomorrow. If today’s vote is successful, another vote will take place on Wednesday to delay Brexit by 3 months.

A delay might take some pressure of the British pound, however, Johnson will look to escalate if it comes to that. The UK PM plans to call a snap election if there aren’t enough votes for the delay which suggests that the volatile swings in Sterling during the early week will likely continue for a few more days.


Technical Analysis

GBP/USD is trading at levels not seen in several years and is not all that far from trading at a price not seen in several decades.

Because historical data can differ from one broker to another at times, the prior important low in GBP/USD might not be exact. However, according to several charts that I’ve checked, it comes in around 1.1905 which was printed in October of 2016. A break below it would have the exchange rate at levels not seen since 1984.

GBPUSD 4-Hour Chart

Considering that volatility has increased significantly in the early week, I’m looking at wide areas for support and resistance. GBP/USD typically doesn’t fluctuation more than 1 cent in a day but there is a good chance it will today and over the next few days.

To the upside, I see 1.2094 as a major resistance level. I wouldn’t normally think that the pair could recover that high within a single session. However, sentiment can easily change depending on how today’s vote goes.

The 1.2000 level is important and carries a psychological significance. I see it as a line in the sand for the session ahead. The pair is trying to recover back above it. If it fails, I suspect GBP/USD might try and retest the 2016 low near 1.1900.

Bottom Line

  • Unusual price swings are seen in Sterling exchange rates as investors prepare for a vote that stands to have a significant impact on how Brexit plays out.
  • If today’s vote passes, expect even more volatility tomorrow.
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