GBP/USD: Sellers Exploit Brexit Uncertainty

The UK government has failed to convey a message of stability in the Brexit saga amid the lack of consensus in the UK parliament to instead find itself in a real mess as it scrambles for an extension to remain a member of the EU. Whenever a country and a currency as the by-product goes through a period of uncertainty, that tends to be a recipe for disaster (read a precursor of deleveraging away from the country’s currency). The chart clearly portrays this level of unpredictability about Brexit, as the Sterling completes a round trip from the low 1.30s, up to the mid 1.33s only to be snapped back down again. That’s the lay of the land when trading the GBP these days, 0 complacency and be on top of every single Brexit development. Fortunately, if you follow the intraday intermarket analysis, the UK-US bond yield spread remains an excellent barometer to keep you on the right side of the market as a gauge of capital flows. The latest sell-side episode starts to have connotations of being climactic in nature as per the elongated extension to the downside towards 1.30, which implies a further continuation should be strongly conditioned to a deterioration in Brexit rather than technicals as the key driver. The latest decline allows us to draw a descending trendline that acts as a guidance of the developing bear trend. The multiple volume profile distribution saw a close sub the POC (Point Of Control), which reinforces the idea that buyers are far from being out of the woods unless they can regain the other side of the mentioned trendline. Overall, the risk towards further bearish tendencies intraday remains well and alive, even if it feels as though a prolonged ‘status quo’ in the Brexit pandemonium this Friday would cut it to find further demand on a retest of the lows 1.30s.