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Sterling gains on an “outbreak of unity”

Market Analysis


The latest Brexit development has underpinned the pound, amid reports that the British government’s cabinet powwow yesterday yielded a compromise among ministers — deemed to be an “outbreak of unity” by one minister cited by the BBC. This has apparently produced a blue print for Britain’s opening pitch to the EU with regard to a post-Brexit trading relationship. The proposal is reportedly for a “pragmatic Brexit” — for a so-called “Canada plus plus plus” deal, which aims to establish a free trade deal similar to the one Canada achieved with the EU, but with better access to the EU’s single market through close regulatory alignment. The concerns of hard Brexiteers, such as Boris Johnson, about regulatory alignment have apparently been mollified by a proviso to purse “managed divergence”, whereby the UK won’t be necessarily be tied to follow EU rules rigidly. The prime minister will reportedly present the pitch publicly next week (Wednesday). With the European Parliament reportedly putting together a detail proposal calling for the EU to negotiate an “association agreement” giving Britain “privileged” access to the single market, the genesis of a UK-EU deal appears to be taking form. A  “Canada plus plus plus” deal.  I remain to be convinced that Johnson and the other members of the wider Tory party will be able to hold the party line much beyond the key March horizon.

Cable lifted to a two-day high of 1.3990, extending the recovery from the 1.3856 low that was posted yesterday. The pound has also gained on the euro and yen, foraying into two-week high territory in the case against the former. Expectations are now as high as 84% for a Bank Of England rate hike at their May meeting. Technically, the H4 candle at 12;00 triggered a long position at 1.3968 (C)  following the Crossing EMA’s & Bollinger band mid line cross (A & B). Target (E) is provided by the 14 period ATR (D) and takes it to 1.4004 with a stop loss (F) below the latest turn at 1.3919.

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Stuart Cowell

Senior Market Analyst


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