Brexit 2019 - so something will happen or how?
On June 23, 2016, a referendum was held on Britain’s exit from the European Union, at which it was decided that Great Britain would withdraw from the European Union, and an end to a long-standing dispute about the kingdom’s place in the EU.
The unexpected results of the British referendum on leaving the European Union, at one time, caused a real fever. The British currency, against the dollar, collapsed by 10% in just a couple of hours, the pound became, according to the results of 2016, the most “failed” major currency, brokers sharply raised margin requirements, and the period of abnormal market volatility lasted more than one week .
To date, the situation has somewhat calmed down, but Brexit, as before, remains one of the main issues on the Forex market news agenda.
So the forecasts of the movement of the currency pairs with the British pound and the issues of optimal trading tactics during the Brexit period are still relevant. We’ll talk about this today.
Brexit and the "deal"
Britain’s exit from the European Union is a practically resolved issue. The possibility of “replaying the referendum" theoretically remains, but the probability of this is vanishingly small - the political risks for the British government are too great. So now it all comes down to the question of how exactly Brexit will go. There are two scenarios: soft, under the so-called “Brexit deal,” and hard - with the rupture of existing agreements and relations, which will have to be built “from scratch”.
A “deal” implies that, from an economic point of view, the “rules of the game” will not change. The UK and the EU, as before, will be members of the “customs union”, will not impose import duties on goods and will maintain full mutual access to capital. However, the EU insists on preserving all the rights of EU citizens in the United Kingdom and significantly restricting Britain’s ability to regulate immigration (which largely contradicts Brexit’s original idea), and also takes a very tough stance regarding Northern Ireland’s status in the EU. Because of this, the British Parliament over and over again fails to vote on the adoption of the terms of the European Union.
Theoretically, if before the “deadline” (at the moment - April 12) the “deal” does not take place, then Brexit will go through the “tough” scenario. Full-fledged customs and full-fledged border control will appear between the EU and Britain, and all agreements on the movement of capital and goods will be broken - the UK will cease to be the financial center of Europe. Both parties are already working on solution packages for the “tough” scenario, but at the same time the deadline has been repeatedly postponed, everyone hopes that an agreement will nevertheless be concluded.
The market is "tired"
The fall of the pound, after the announcement of the results of the referendum, was sharp and very significant. It fell against the dollar from 1.50 to 1.37 USD in just two hours. None of the major currencies in the history of the Forex market showed such a bad two-hour chart. In relation to the euro, the decline was 7%. Some minor currencies, for example, the South African rand, and the largest stock indices, including the Dow Jones (-2.5% in half an hour) and FTSE 100 (-5% in two days), collapsed. The panic in stock markets led to the largest one-day loss in history - more than $ 2 trillion.
However, after this the recovery period began. Stock indices returned to “Dobreksitovskie” values in a couple of weeks, and the pound, by now, has won half the drawdown against the dollar. EURGBP pair fluctuates around the “post-Brexit” lows.
At the same time, the reaction of the market to Brexit news is much weaker than to the initial results of the referendum. Voting in the British and European parliaments, the announcement of a “deal”, transfers of the “deadline” - all this causes jumps in market volatility, but the resulting changes in the pound after the news does not exceed one percent. The market is waiting for final and definite decisions, and not for next intermediate ones.
But, due to the unpredictability of fluctuations in the British currency rate at the Brexit news outlet, it is a good idea to exit the market ahead of the next news and enter only after the formation of a steady trend.
Probable movements of currency pairs in connection with Brexit
Friday April 12 promises to be extremely unpredictable. It is on this day that the next “Brexit” deadline is scheduled. It is better to “wait out” the period of this news release - if you stay in the market, the risk of merging a deposit will be very great.
Further prospects for the pound and the euro depend on the actions of European and British politicians. With the most likely outcome - the next transfer of the “deadline” - the current uncertain situation will drag on for a longer period.
In the “soft” scenario, we can expect a significant strengthening of the euro and the pound against the USD. Probably the “rally” of the pound against the euro - all the previous positive news on the “deal” led, albeit to an insignificant, but strengthening of the British currency. And even neutral news had a similar effect.
Thus, the publication of the Brexit voting schedule, scheduled for April 3, led to the growth of GBPUSD from 1.303 to 1.3050 and the pair continues to grow gradually. Despite the fact that it was only announced that in three readings a special bill will be adopted to prevent a “tough” scenario and extend the time to work out a compromise solution.
GBPUSD is now consolidating above the average over the past 200 days, so it’s clear that even minor positive news is launching a bullish trend in the market.
In the event that a “divorce with scandal” occurs, the pound will collapse again. One should expect a new panic in the stock markets with all the attendant consequences for the global economy. However, the EURUSD pair will also go down sharply, because Europe will lose its main financial center, as well as an important hub for the movement of capital between the Old and New Worlds.
In addition, the problems of the Teresa May government in connection with the “slipping” of the Brexit negotiations could lead to a drop in the pound. Once, the “negotiating team”, led by the Minister of Foreign Affairs, had to be changed, and this led to a drop in the British currency. The repetition of this scenario or even the resignation of the entire cabinet cannot be ruled out either.
It is impossible to say unequivocally how Brexit will affect the EURGBP pair. Analysts can not yet decide whether the “hard” exit of Britain will be a bigger problem for the pound or for the European currency.
The problems of the European economy (and, first of all, those related to Greece) make the eurozone stable, but its position is clearly worse than that of the UK economy. In fact, only the Brexit and the associated monetary policy of the Bank of England, which purposefully restrains the pound, keeps the pound from the rally to the euro. And in the case of “soft” Brexit, these constraints will cease to work, and the situation will return to “dobrexit” when the euro is slowly but steadily cheaper.
As a result, both scenarios of the United Kingdom's exit from the EU can lead to a depreciation of the European currency.