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Brexit News: Sterling Remains at Risk of UK Government Breakup

Brexit News: Sterling Remains at Risk of UK Government Breakup

Nick Cawley, Senior Strategist

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Brexit, Sterling and UK PM May:

  • Sterling’s short-term pick-up under threat.
  • Further cabinet resignations expected.

We have just released our Brand New Q4 Trading Forecasts including USD and GBP.

Sterling (GBP) Sell-Off Risks Remain

UK PM Theresa May is likely to remain in power in the short-term but further resignations from her cabinet cannot be discounted, leaving the Prime Minister in a perilous position.Talk continues to do the rounds that Michael Gove, environment secretary, will tender his resignation after yesterday refusing the post of Brexit secretary, while secretary of state for international development Penny Mordaunt is also rumored to be resigning. In addition, the DUP has said that it will not support the draft agreement, increasing fears that that the bill will not pass through Parliament.

How Does a Leadership Challenge to a UK Prime Minister Work?

Sterling remains weak and any rebounds find new sellers. Against a slightly weaker US dollar, GBPUSD trades around 1.2825 and the short-term downtrend remains in place. A head and shoulders pattern is playing from late October, leaving the August 15 low at 1.2662 at risk.

GBPUSD Daily Price Chart (May - November 16, 2018)

EURGBP has broken out of its downtrend pattern and continues to push higher. The pair now trade above all three moving averages and currently trade either side of the 50% Fibonacci retracement level at 0.8860. To the upside, Fibonacci retracement at 0.8916 guards the October 30 high at 0.89390. A close above here will break the sequence of lower highs and support further upside momentum.

EURGBP Daily Price Chart (May – November 16, 2018)

IG Client Sentiment Data show retail holdings and how they affect a currency pair’s outlook.

GBPUSD trader data shows retail are 68.8% long – a bearish contrarian indicator – and recent daily and weekly changes give us a stronger bearish contrarian bias.

EURGBP trader data shows retail are 40.8% net-long. The number of traders net-long is 20.4% lower than yesterday and 38.3% lower from last week, while the number of traders net-short is 21.4% higher than yesterday and 14.6% higher from last week – substantial market shifts - giving us a strong bullish contrarian bias.

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on Brexit and all that it entails? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.com or via Twitter @nickcawley1.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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