Time to Buy The Pound?

A week after PM Teresa May’s speech in which she outlined Britain’s preferred course through the Brexit negotiations, she has had an incredibly tough session in Wednesday’s PMQs.

With her hands now tied into delivering a “white paper” for parliamentary scrutiny, the nuts and bolts of Brexit will at last be laid bare.

But by no means has this been a bad thing for the pound.

With GDP expected to come in at 0.5%, as well as an uptick in Business Optimism, the UK continues to produce strong economic data. And the recent high court ruling and rhetoric surrounding Brexit continues to suggests that Britain’s divorce from the EU will be a far more civilised one.

Clearly what is being priced into the markets now is the likelihood that any plans to sever access to the single market will be rejected by parliament. How valid this view point is, remains to be seen, but for the time being, the pound is recovering.

 

Sterling Price Action 25 Jan 17
Sterling Price Action 25 Jan 17

Source: tradingview.com

 

Make no mistake, cable has fallen a lot since June 23. But this chart shows how much it has recovered since the start of the year. However, sterling is not out of the woods yet. We can see two key price resistance levels – 1.27 and 1.34.

If Cable can manage to break above 1.27, and is further supported by positive data, then we can reasonably expect 1.27 to become the next key support area possibly even by the end of the week.

Beyond that, and there is a clear path to 1.34, the high of the initial post Brexit range.

It seems, despite the Brexit shadow, this could be a goof point to start backing the bulls on the pound.

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