Brexit Just Won’t Go Away; For the Pound, That’s a Good Thing

FX:GBPUSD   British Pound / U.S. Dollar
Brexit. Its kind of like a bad tattoo in that it never goes away, yet was almost immediately regrettable. Unfortunately that continues to be the case this week with Prime Minister May meeting with opposition leader Jeremy Corbyn to etch out a deal for the House of Commons to pass her bill which has already been rejected three times. Much ink has been spilled and many black pixels dedicated to the analysis of Brexit and forecast of where things are headed. In spite of this, we know just as much about where we will be on April 12th as we did when the deadline was first announced.

Moreover, the price of the pound to the US dollar is now nearly completely divorced from fundamentals and simply trading on the notion that a no deal Brexit will be avoided. But is this the case? And if so, to what degree is a deal priced in? One of the only non-political comments an observer could make on the cable chart to look for those former levels of resistance as support. 1.19 is about the lowest level of support while 1.26 to 1.27 could also be interesting support levels if the price moves down in the aftermath of a Brexit deal as a no deal Brexit would probably test the former levels seen in 2016 and 2017:

Vote for the Brexit that promises least; It will be the least disappointing

Will the pound break through previous levels of resistance and form them as support, or will it crash 20 percent like the aftermath of the 2016 Brexit referendum? Hard to say at this point as the website oddschecker.com asserts the chances have increased that UK opposition leader Jeremy Corbyn will become the next UK PM. Its shortened to 5-1 at many of the bookies, roughly equal to former Foreign Secretary Boris Johnson and Michael Gove, the Environment Secretary. They are now the expected favorites to replace May after Dominic Raab, a former Brexit Secretary who resigned from the government late last year and is now quoted at around 9-1 and Jeremy Hunt, the current Foreign Secretary, whose odds have drifted out to around 10-1.

While the chances of Corbyn becoming Prime Minister continues to go up, it is still yet to be determined if there will be a general election and if the Conservatives can get May to resign as leader as she had promised. The question remains though when any of these potential outcomes would come to fruition, although speculation abounds that it would have to be after an extension to the April 12th deadline. Although the pound has been highly volatile since the British voted to exit the EU in June 2016, it is important to keep in mind that the pair reached a low of 1.18 in October which has since risen to above 1.31.
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