Pound traders kept guessing as Brexit developments still sit in a state of limbo

Technical Analysis

Author: Justin Low | gbpusd

Cable is back to levels where it has been trading for most of this week

GBP/USD H1 08-02-19
ForexLive
The BOE provided some good volatility yesterday after it cut growth forecasts, which sent cable down to a lows near 1.2850. The pair then staged a rebound from swing region support near 1.2857 to close in on a test of the 1.3000 handle as well as the 100-hour MA (red line).

Sellers prevailed once again and the pair is sent back lower to trade around 1.2930-50 currently, levels that it has traded around since Tuesday.

May's visit to Brussels yesterday brought no compromises or solutions to the current Brexit deadlock, not to anyone's surprise. But the key thing that was revealed is that there is growing talks of a potential deal if May chooses to work with Corbyn and his Labour party instead.

A cross-party compromise is far from likely but there just doesn't appear to be any other way in which things can work out at this point.

Labour's official position is supporting some form of a 'Norway-Plus' deal, so this is where May can seek to try and reach a consensus and gather their support if she so chooses to walk down this path. That said, in doing so she risks suffering the wrath from her own party so there's also that half of the equation to consider.

At this stage, it remains unclear what her plan is and so the Brexit limbo continues. We could hear more things from the weekend so as Giles mentioned, be wary of holding pound positions into the new week in light of the current Brexit predicament.

The reasonable way to approach this is to think that the longer this state of limbo drags on, the more markets will price in higher odds of a no-deal Brexit (pound negative). It only makes sense as traders will not want to get caught being too unprepared for such an eventuality. There's only 49 days left on the clock, mind you.

However, that negative pricing on the pound is still subject to headline risks and all it takes is one positive headline for a deal of some sorts and the quid will start soaring again.

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