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Brexit decision causes pound to rally

Article by ForexTime

Pound traders were slightly bullish today on the back of news out of the United Kingdom that Parliament will indeed get a vote on the Brexit, with the  court’s ruling that it was unconstitutional for the current government to leave from the Euro-zone without putting a deal to vote in parliament. This will of course go straight to the supreme court at the end of the idea, but the idea that it might stop the Brexit is unlikely, given that parliament just wants the power to vote on the deal and not to stop the entire process at all. In a nation that prides itself on democracy to go against the referendum would certainly be a dark turn for politics, however many still believe that it’s possible and the markets today certainly felt that was the case given the rise in the GBPUSD.

The Bank of England also had its time to shine today as well, but was overshadowed by the political media storm that erupted. Carney was obviously speaking out on the BoE’s current views and believes that the exchange rate is driving inflation, which is very much the case with the large drops that we have seen. Certainly it feels that the current market expectation is for inflation to increase, but with the Brexit on the horizon it may be unwise to even talk about the prospect of lifting interest rates to help curb inflation which will have a large impact to people on the lowest incomes. With the interest rate stuck at 0.25% there is certainly no hurry from the BoE to break the norm at this stage. One thing that may be likely though is that if the Brexit does have a hard shock on the economy we could see more stimulus and action on the monetary policy front to help prop up the financial markets and the general economy in a targeted manner – the scope of that remains to be seen, as article 50 needs to be invoked first.

With the technical’s all pointing south the jump today was purely on the back of the media storm. The question is can the GBPUSD go any higher in its current position, the answer I believe is that it can possibly if we continue to have uncertainty around the Brexit and weakness in the USD. Resistance in the market is certainly hard to find, but I feel in this case the 50 day moving average presents a very strong case for dynamic support, given how fragmented the charts are at present. Curiously the 20 day moving average has also been acting as dynamic support and resistance previously with the movements in the market as traders have been keen to find something to cling to. I would look to use the moving averages heavily here with potential support found on a pullback at 1.2358 at this stage. Beyond this support level support would also be found at 1.2164.

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About Louie Lewis

Louie Lewis
Successful forex trading starts with you first. Then comes the actual strategies and techniques. I have been involved with forex and forex trading for a few years now. It is a wonderful way to build wealth. The learning never stops and I want to help others along their journey into this wonderful market of opportunity.

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