It started with a simple question in 2016 – ‘Should the United Kingdom remain a member of the European Union or leave the European Union?’ At the time, it was thought the vote would lead to a binary outcome, but it has since evolved into anything but that. We have seen a General Election, Article 50 triggered, two and a half years of intense negotiations, countless resignations, the Irish backstop debacle, a government found in contempt and a deal losing by the biggest margin in British history. If things have not already escalated enough, we now have cross-party involvement. Varying ideas such as ruling out a no deal, staying in the customs union, a second referendum and extending Article 50, have all been thrown into the mix. The same subject dominating the news each day with no end in sight may drive most people a little mad, but for us traders, it presents opportunities.

What have we got to look forward to? In a week that saw her deal shot down but still retain Parliament’s confidence, PM May will present plan B to the House on Monday. Cross-party talks, minus Labour Leader Jeremy Corbyn, may yield a new path. This could be significant for the pound as sterling-friendly options include extending Article 50, staying within the customs union and ruling out a no deal. It’s hard to see how any of these three options could come to fruition. An extension of Article 50 requires EU approval, the PM May has ruled out the customs union and a no deal is enshrined in law as the default option if a withdrawal agreement cannot be agreed. Though these options seem unlikely, with the withdrawal date rapidly approaching and a house deeply divided on whether they should deliver on the 2016 referendum or not, anything can happen.

GBP/USD

Sterling has been enjoying a brief respite lately with the possibilities of Brexit becoming a little softer. GBP/USD has traded up to levels seen back in November, before we fell down to 20-month lows. A price of around 1.3 was traded but has since fallen back lower. It seems we are in a trend channel which has been developing to the downside for some time; a solid move above here with a sustained hold could pave the way for further gains. Above 1.3086 we have a 38.2% fib at 1.3178, which further pushes up bringing the July/September highs into focus between 1.3296/1.3343. The remaining fibs sit at 1.3407(50%) and 1.3637 (61.8%).

Momentum can spin around at the flick of a switch, and I’m positive initial knee-jerk reactions will happen at the prospect of a no deal. Recent lows of 1.2435 should be easily overcome, as trading heads towards 1.2381/1.2317 and then the 2016 lows at 1.17.

GBP graph - 1801