Hard times ahead for the GBP

What happened

Brexit tension is likely to take a new level now.

On Monday, the UK Prime Minister Boris Johnson confirmed his commitment to have the Brexit document agreed on by January 31. “No ifs, no buts”, as he said. Consequently, Brexit is going to be over by the end of the next year – at whatever cost.

What does it mean

It means that the optimism of the market, which saw the GBP soar on the victory of the Conservatives last week, will be most likely short-lived. Indeed, everyone was tired of the prolonged uncertainty around Brexit, but there is a difference between being clear and going hard. Now, the investors will almost surely have a hard Brexit – something that they were definitely not looking forward to.

The market will react accordingly.

Market reaction

EUR/GBP

Since August, the EUR/GBP has been declining, making an exception for a few weeks at the end of September and the first half of October. The December 12-13 drop of the euro against the British pound did not reinforce that dynamic much. In fact, the price has been on a rise to test the 50-period Moving Average. On the H4, the question is: will that be another rise like many before, when the price inched above the 50-MA to follow the decline back again, or it will be a trend-changing rise?

All other GBP pairs

Against the other currencies, the GBP is showing almost an identical picture but inversed.

On the H4, we see that the surge of December 12-13 is followed by a drop to test the 50-period MA against the USD, JPY, and CHF. Although we did not include the charts for GBP/CAD and GBP/AUD, the situation there is exactly the same.

The coming days will show if the GBP wants to break through the 50-MA and keep falling. From the technical perspective, the Awesome Oscillator crossing the zero-line may be another confirmation for that, as we see it approaching there.

Conclusion

Follow the news. As of now, most of the media are predicting hard times ahead for the British pound, with a little to zero probability of a significant upsurge.

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