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Sterling (GBP) Gripped by UK Leadership Vote, Hard Brexit Fears

Sterling (GBP) Gripped by UK Leadership Vote, Hard Brexit Fears

2019-06-18 09:30:00
Nick Cawley, Strategist
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Sterling (GBP) Price, Chart and Analysis

  • The second round of voting for the Conservative leadership continues today.
  • Sterling rattled by Boris Johnson and Hard Brexit rhetoric.

Q2 2019 GBP and USD Forecasts andTop Trading Opportunities

Sterling Rattled by Fears of a Hard Brexit as Boris Johnson Dominates the Polls

The British Pound remains weak in the face of heightened hard Brexit fears ahead of the second round of voting for the Conservative leader sip. Brexiteer Boris Johnson is currently a strong odds-on favorite to win the roll with some bookmakers pricing Johnson at a prohibitive 1/8 on with current second favorite Rory Stewart offered at 10/1. Indeed, it is mathematically possible that Boris Johnson could be announced as the new Tory leader today if none of the other 5 leadership hopefuls get the required 33 votes needed to keep the contest going. The result of the second round of voting is expected at 6pm today.

Sterling is now starting to price-in a potential Hard Brexit with Boris Johnson seemingly having the keys to No.10 Downing Street. Johnson has made it clear that he wants the UK to leave the EU on October 31 with or without a deal. As always in politics, there is wiggle room as Johnson has been saying recently that he would prefer a deal with changes made to the current Withdrawal Agreement to enable it to pass through Parliament. The EU however remain firm that no changes will be made, leaving Johnson in the same position as Theresa May.

With a Hard Brexit becoming fractionally more probable, and with another few months of haggling with the EU fully expected, Sterling is taking the brunt and heading back towards 2019 lows against the US dollar. It is likely that Sterling will weaken further before any turnaround occurs. The one factor that may prevent GBPUSD dropping sharply is tomorrow’s FOMC meeting where Fed Chair Powell is expected to point to a 0.25% US interest rate cut at the July meeting, the first of 2 or maybe even 3 rate cuts expected in the US this year.

A look at the daily GBPUSD chart shows the January 2 low print at 1.2435 remains vulnerable. If broken convincingly, GBPUSD would be back at levels last seen in April 2017 and may attempt to break the March 2017 swing-low at 1.2110. The CCI indicator does show the pair in oversold territory and this may act as a brake on further downside momentum.

IG Client Sentiment data paints a negative picture for the pair with 81.1% of traders long GBPUSD, a bearish contrarian bias signal. However, recent daily and weekly positional changes give us a mixed trading bias for GBPUSD.

GBPUSD Daily Price Chart (September 2018 – June 18, 2019)

Sterling (GBP) Gripped by UK Leadership Vote, Hard Brexit Fears

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 GBPUSD – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.comor via Twitter @nickcawley1.

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

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