Technical Analysis

Sterling drifts ahead of key Brexit decision day for Boris Johnson

Will Johnson do the unexpected and blow up negotiations for good?

The pound is drifting to start the day, with cable seen back under 1.2900 ahead of European trading but not really facing any urgency to retest the lows this week @ 1.2863.

For now, sellers are still keeping a more bearish near-term bias upon a break back below both the key hourly moving averages yesterday and the drop in GBP/JPY below its key daily moving averages yesterday also isn’t really helping with pound sentiment.

That said, a lot rides on the next move by UK prime minister, Boris Johnson.

He is expected to give a response as to whether the UK will want to continue with negotiations beyond this week after what Frost described to be an “unusual” approach by the EU after they no longer committed to working ‘intensively’ towards an agreement.

Considering that cable rests around 1.2900 still, I would argue that the market isn’t really priced in a way to account for Johnson pulling the plug on Brexit talks today.

Hence, the risks are skewed to the downside in my view.

If he does keep hopes alive, the pound could rally on the headlines but I would think that resistance around 1.3000 and the recent highs closer towards 1.3050-83 will limit any near-term gains and the euphoria might very well quickly fade.

After all, kicking the can down the road once again does not exactly mean we are getting closer to a Brexit deal being struck but at least there is a hopeful chance.

But considering that we’ve been down this road time and time again, there’s every likelihood that this gets pushed towards 31 December and when the time comes, we all know there’s every possibility that this gets dragged into next year at least.

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