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Buy The Rumor, Sell The Fact Sets Sterling For Correction Off 5-Month High

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  • If a “meaningful vote” does occur on March 12 and Theresa May’s plan is successful, there are 17 days left to extend the Article 50 end-date to allow for legislation around the Withdrawal Agreement to be passed.
  • If the “meaningful vote” means defeat for May’s plan, there will be a vote on whether a “no-deal” exit should be removed on March 13 and then on the following day there would be a vote on extending the Article 50 end date. 
  • The GBP/USD is trading just below a fresh 5-month high of 1.3287 in “buy the rumor, sell the fact” strategy.
  • The Bank of England Governor Mark Carney said during the February Inflation Report parliamentary hearing that given the exceptional circumstances of Brexit, he would expect Monetary Policy Committee to provide whatever monetary support it can. In the no-deal Brexit scenario, MPC’s tolerance for sustained overshoot of inflation target could be breached and some tightening would be required.
  • The golden cross confirmation of 50-DMA and 100-DMA point to the upside potential targeting 61.8% Fibonacci level of 1.3390.

The GBP/USD is trading little changed on the upside at around the middle of 1.3270, just off the 5-month high of 1.3287 as the prospects for delayed Brexit support “buy the rumor, sell the fact” trading strategy. 

Sterling rocked the markets on Tuesday after the UK Prime Minister Theresa May said that if a “meaningful vote” does occur on March 12 and her plan is successful, there are 17 days left to extend the Article 50 end-date to allow for legislation around the Withdrawal Agreement to be passed. In case of a defeat for May’s plan, there will be a vote on whether a “no-deal” exit should be removed on March 13 and then on the following day there would be a vote on extending the Article 50 end date. The chances of delayed Brexit rose increasing investors’ appetite for Sterling.
The Bank of England February Inflation report hearing in British parliament saw Governor Mark Carney repeating the risk of a no-deal Brexit to the UK economy and the monetary policy outlook. Carney said that in the no-deal Brexit scenario, MPC’s tolerance for sustained overshoot of inflation target could be breached and some tightening would be required.

Technically, the Brexit delay optimism pushed the GBP/USD past key resistance at 1.3100 and 1.3200. The GBP/USD cathed the fresh wind of strength on Friday last week after testing 1.2970 level on the downside and rebounded strongly to the upside on delayed Brexit hopes.

The technical oscillators including Momentum and the Relative strength index are pointing upwards and Slow Stochastics continues to move upwards within the Overbought territory. The most important technical feature though is the golden cross of the 50-day moving average crossing over the 100-day moving average (DMA). The golden cross is a strongly bullish technical signal that is expected to push Sterling to 1.3300 before testing the 1.3390 representing 61.8% Fibonacci retracement of post-Brexit recovery from 1.1800 to 1.4374.

GBP/USD Daily chart

gbp_usd_daily-636868568794469783.png

Posted-In: Bank Of England BrexitNews Eurozone Forex Global Markets General

 

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