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24 days til Brexit GBPJPY

Oct 7 2019, 07:45 PM (+06) |

Halloween, traditionally a festive day to celebrate everything that is scary, is just 24 days away, and so is Brexit. After years of campaigning, months of arguing and delaying will the United Kingdom finally leave the Eurozone and how? Here are the latest developments. 

Over the weekend Prime Minister Boris Johnson spoke to the Dutch Prime Minister Mark Rutte on Saturday and French President Emmanuel Macron on Sunday. PM Johnson is to continue further calls and discussions with European leaders of Sweden, Denmark, and Poland at the beginning of this week. 

A new deal is being discussed. The main jab remains with the Northern Ireland and the Republic of Ireland backstop.  The concern is how Ireland and Northern Ireland can exist in different customs territories while keeping the border as open as it is now under all circumstances. 

President Macron mentioned on Sunday, that the European Union will evaluate and decide if the new deal is possible that respects European Union principles by Friday, October 11th.  

The next important date is October the 19th. This is the deadline for an agreement on a new deal Brexit. If an agreement is not reached by the 19th of October, PM Johnson is required by law, under the Benn Act, passed last month, the prime minister must write to the EU requesting a Brexit extension if no deal is signed off by Parliament. The deadline is set for a day after the European Summit, where Heads of state and Government of the European Union will meet in Brussels on the 17th and 18th of October. 

PM Johnson states that he believes a deal can be reached if the EU compromises and meets the UK halfway. He has also recently taken on fresh ammunition towards a No-deal Brexit if a deal is not reached, proclaiming that there is no way that he will request an extension, while on a different occasion he stated that the government will comply with the law and the Benn Act. Has PM BoJo found a loophole? If he has, he is keeping it secret.

So, what are the different possible scenarios for Brexit? A deal, no deal, or an extension? 

In the unlikely situation that a new deal is agreed upon in the short period of time remaining, some kind of extension is likely to take place to plan out the actual transition. In case a deal is reached, the British Pound should recover its losses attained since May 2019 and Brexit tensions.

Regarding an extension, today Scotland’s highest civil court, the Court of Session, ruled against the Anti-Brexit campaigners request that would force PM Johnson to request an extension against his will. Would an extension benefit or harm Brexit further? That highly depends on individual opinion. 

Johnson’s Conservatives are 15 points ahead of Labor, there has been a shift in change due to a 5% drop in support for the Liberal Democrats, who propose revoking Article 50 and canceling Brexit altogether.   

An extension may recover the sterling some, as fears of a crash out ease, but what next? Extended uncertainties and tensions will further dampen the Euro zones and the UKs economies.  A possible general election would only increase the confusion. 

The prospect of a No Deal paints no better picture. The sterling is likely to drop along with UK Stocks. And the BoE will probably start easing monetary policy on their first meeting after October 31st, which is to take place the following Thursday, November 7th. No-deal concerns lie with trade tensions, disruption of businesses and in turn workers as well as food and medication shortages and consequently price surges.  

In the beginning of October, we had the release of UK Manufacturing, Services and Construction PMI.  Although the Manufacturing PMI showed a slight increase to 48.3, it still remains below the critical level of 50. The Construction PMI experienced a decline to 43.3, below the forecast and previous reading of 45 and the Services PMI entered contraction by dipping below 50 to 49.5. 

Thursday will be an interesting day for the GBP. UK will announce their GDP at 11:30 GMT+3, along with Industrial and Manufacturing Production. 

Looking at the 4HTF for GBP/JPY, we see that at the beginning of October, the price intersected and is now below the 200EMA. 

The 200 EMA and 50EMA are also intersecting. The price has reached a strong area of support at the 50% Fibo level, in the area of 131.302. We also have a local trend line down acting as a respected level of resistance. 

Short positions look to be more favorable at this time. Wait for the price to break and move below the 50% Fibo level at 131.302, with targets down at 130.326 (61.8% Fibo), followed by support at 129.787, then 129.420 and further down we have support at 128.938.

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