he next total lunar eclipse in 2021 may arrive quicker than Brexit. Will Brexit happen? Will there be an extension to Article 50? Will there be a resolution on the Irish backstop? Productive cross-party talks seem as likely as agreement between the Democrats and the Trump administration on the border wall. So, what happens next?

Theresa May goes back to Parliament and makes a statement to the House of Commons today. Cue more merry debate. At present, some kind of extension to the Brexit process is looking like the option that will come to pass. However, no doubt as soon as I’ve finished writing this sentence there will be another development.

What is happening to Sterling? To massively simplify things if an extension to Brexit looks more likely Sterling trades higher. If No deal looks more likely then Sterling falls. Expect Sterling to react more dramatically in the coming weeks to news flow as we hurtle towards end of March.

 

You can view the recent movements on Sterling/Dollar (Cable) and Sterling/Euro on the graphs below –

GBP/USD - 1 Week

 

GBP/EUR - 1 Week

 Sterling/Dollar

Sterling/Dollar climbed higher last week although is trading slightly to the downside at the start of this week. If you have a requirement to purchase USD from GBP consider taking some risk off the table by covering some on a SPOT basis at current levels. In addition, dependent on how Brexit negotiations progress Sterling may have a sharp rally higher. Whilst I don’t think we’ll hit 1.30 the figure in the next few trading sessions there is a chance we push through this level again. Please get in touch with the trading department to implement take profit orders at 1.30.

Whilst UK politics, as ever, will be the main driver for Sterling, we have Average Earnings (3Mo/Yr) (Jan) and also the ILO Unemployment rate (3M) (Jan) out of the UK on Tuesday. Prints of 3.3% and 4.1% are expected respectively. If any of these figures disappoint to the downside then we may see a fall in Sterling. If you are holding US Dollars then consider placing take profit orders to the downside around 1.28 the figure. Please contact the trading department to implement orders and to discuss further technical levels.

Sterling/Euro

We are trading around the middle of the range over the past 12 months. We hit the dizzy heights of around 1.1580 back in April ’18 and have traded as low as just under 1.10 the figure.

We have the ECB Interest rate and Deposit rate decision out on Thursday followed by the ECB press conference. This will likely be a non-event so we shouldn’t see too much movement in the single currency. If you have a requirement to purchase EUR from GBP I would look at current levels as being relatively attractive. Might we push higher? Absolutely. However, the downside risks around Sterling are numerous. Feel free to get in touch with the trading department for a SPOT rate. Should we see some miraculous agreement surrounding Brexit then Sterling may shift higher by percentage points. Please get in touch to discuss technical levels to aim for and implement orders at levels that may hit in the coming weeks.

Selling EUR back to GBP? As I’ve said before, historically, you’re at good levels to sell back into GBP so do take advantage of this. Yes, there may be more movement in your favour although if you look on a 5 year basis then we were trading above 1.40 the figure. Please get in touch directly if you would like to discuss your individual requirements with me.

Have a fantastic week and any questions please let me know.

Written by Liam Alexander