Some things are just too hard to solve
The pound fell yesterday as it became increasingly clear that Theresa May is fighting isolation at home and abroad. It is testimony to her character that she is holding on to her position despite the pressure she is under. Let's just summarise where she is.
The EU Summit
There is plenty of positive rhetoric from both the EU and Theresa May. Yesterday, both sides re-iterated their desire to make things work and saw 'good Brexit prospects'. However, to me this simply affirms how big the gaps are about the Irish Border issue. In short, the EU want a border in the Irish Sea, so N.Ireland remains in the EU along with Souther Ireland. This is to avoid a Northern and Southern Irish border. If you want to see a quick video explaining it the BBC have done a good 3/4 min explanation on the issue. It starts slow, but gets to the point. See it here. If you don't understand the issue, don't worry. The bottom line is that the EU and Britain can't agree on a solution. This is unsurprising as it is a very trick problem to solve and a solution is not looking likely, hence Theresa May trying to play for more time in the negotiations. If you had to summarise the EU summit so far in terms of progress I think the it is a step backwards in negotiations. There was plenty of optimism going into the meeting, but Theresa May has not provided the clarity that the EU wanted. We just have a slight shrug of European shoulders and, according to Bloomberg, Theresa May spoke so fast as she addressed the assembled leaders Merkel had to ask Barnier to translate. The positive rhetoric at the end of the meeting is a commitment to meet again, but it is now that the EU will start to consider a hard brexit. Some have looked ahead and seen what seems inevitably looming. Check out this piece from John Springford the senior research fellow as the Centre for European Reform.
At home
Theresa May is a very stable leader and determined. However, she does not come across as a strong leader. She may very well be, but the persona is not strong. However, she has a lot of strong character critics who do command attention and she has to be aware of. Boris Johnson, Lord Rees -Mogg, David Davis, and a growing swell of annoyed tory hard brexiteers. She also has a Labour Government, the N.Irish DUP and Nigel Farage who makes the headlines fairly regularly and easily being so eloquent and direct in his speech (he has an almost soundbite factory in his manner of speaking with a simple directness which makes him compelling). She can't possibly please them all, but she has to be aware of them all. They will push and pull her until something gives. She either comes up with a brilliant plan and a compromise is reached that passes through parliament or a hard brexit becomes the only option. I am starting to have that creeping hard brexit feeling. The Irish Border sees unsurmountable, perhaps because it is.Ok, this hunch is not tradeable, but it should make us aware that a risk of a no-deal is growing. So, in the near term sell those rallies. In the medium term the 50EMA defines risk on the weekly chart and the 100 EMA on the daily chart. These levels provide high reward, low risk entries for now in the current climate and good levels to lean against.
