Only slightly more than two months are left to the extended brexit period. At the end of October, Great Britain should leave the European Union in accordance with the will of the citizens expressed in the referendum. However, there is still no specific divorce agreement. Hence, a brexit scenario without a contract is still quite likely.
Attempts to change the agreement, which was negotiated by Prime Minister Theresa May, do not bring results for the time being. Current Prime Minister Boris Johnson has prepared to travel to Germany and France to obtain support for renegotiating the divorce agreement. However, German Chancellor Angela Merkel said on Tuesday that there is no need to reconsider the existing brexit agreement.
This reduces the chances of the successful mission of Prime Minister Johnson and can put pressure on the pound. According to the British bank Barclays in the case of hard brexit The Bank of England would be forced to cut interest rates by 50 basis points within one year.
According to Barclays, the GBP/USD exchange rate could fall to 1.0900 from the current 1.2130. This is the black scenario for the pound against the US dollar. In turn, in relation to the euro the EUR/GBP exchange rate could increase by as much as 8 percent to around 0.9900, so close to parity.
GBP/USD weekly chart. Source: Conotoxia trading platform.
From the chart's perspective, the recent GBP/USD decline has stopped near the lows which were set in October 2016 and January 2017. According to the assumptions of the technical analysis, breaking this support could only pave the way to lower levels. In the shorter term, the trend channel also seems to be important for the pound, as its upper and lower limits currently set the nearest resistance and support areas.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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