BREXIT still rolls on. Last week, we saw another confidence vote, a record sitting government defeat on legislation in the House of Commons and some never to be forgotten speeches to rally MP’s from both sides of the house.
Am I weird?
I loved it; all the way from the Theresa May BREXIT deal failure to the
no-confidence vote. The speech from Michael Gove was the House of Commons theatre at its best. It could of course be viewed as a “Look at me I am going to be running to be the next Tory leader type of speech”, nevertheless, his closing speech pre the confidence vote itself was delivered brilliantly. It contained both facts and great humour, especially regarding the Vince Cable, Leader of the Liberal Democrat approach to referendums. Michael Gove refereed to it as the “Vicky Pollard” (Little Britain) approach of “yeah but, no but, yeah but, no but, yeah but”; it was a classic moment. His attack on Jeremy Corbyn was direct and the points raised to the SNP leader in the House of Commons, Ian Blackford, were well placed.
I watched SKY NEWS and Parliament.tv for most of last week, it was great. So, what’s next?
On Monday, we have Theresa May PLAN B to be put to the “House”. What will it really be, and will it be beyond her previously highlighted “RED LINES”? It is really anyone’s guess. There are plenty of rumours to keep ourselves busy with. Whichever path the news flow from the House of Commons takes us down Parliament votes on the PLAN B on January 29th2019.
From an FX perspective some easy money was made last week on the spike off the sub 1.2700 lows. We squeezed to 1.3000. Now we are still in a news driven environment, that hasn’t changed but the options ahead make the FX reaction fairly clear in my mind.
I think it is good to remember anything that keeps the UK close to the EU with as little change as possible is cable positive. Anything that takes us down a road whereby the eventual outcome is away from the EU or unclear, which delivers uncertainty will be cable negative.
DEAL OR NO DEAL
GET THE CANS READY TO KICK DOWN THE ROAD
So, what are the options?
As far as I can see there are a few different scenarios to consider. There could be more than this:
- BREXIT deal keeping close ties to the EU:
This is also known as a NORWAY+ deal. Whilst this may not be viewed by BREXITEERS as a BREXIT deal it is the one that would command most support in the House of Commons. Whether BREXIT voters could swallow this deal is debatable as Brussels would still rule over the UK and freedom of movement would still exist, and there would still be hefty EU contributions. The IRISH backstop would still remain in place.
It would probably require an A50 extension.
We have to remember the voters voted in favour of BREXIT.
MP’s are more aligned with Europe and the majority are REMAINERS.
This should be a non-starter option and if any possible solution could have rioters on the streets this one could.
- A BREXIT with a CUSTOMS UNION:
This would prevent new UK trade deals.
BREXITEERS would NOT be happy and resignations could be high from Theresa May’s government. The DUP would not be happy as the IRISH border issue is not 100% fixed by remaining in a customs union. This option would also require an A50 extension.
This is a non-starter in my opinion.
- A GENERAL ELECTION:
Labour seizes an opportunity with another vote of no confidence on the back of angry BREXITEERS who feel they are losing the fight for a BREXIT on their terms.
This could be seen as political suicide for BREXITEERS as they run the risk of losing their seat and also from a Tory BREXITEER perspective, they could facilitate Jeremy Corbyn in through the back door as the new UK Prime Minister.
- A SECOND REFERENDUM (PEOPLE’S VOTE):
This would be the Labour Party drop down option following the General Election option. Several Tory MP’s also believe a second referendum put to the people now, gives the population a chance to vote based on facts regarding REMAIN v BREXIT that weren’t there before in 2016.
Allegedly, the government believes it would take 12 months to set up a second referendum. Hmmn .... it takes about 6 weeks to organize a full General Election. Only the questions need to be agreed double the time allowed 3 months? This is either cow, camel or bullsh*t.
It would also require an A50 extension.
From a Tory government perspective the second referendum sits better as they remain in power. Theresa May is heavy on BREXIT means BREXIT but given that over 2 million more 18 years olds would now be eligible to vote and some elderly people would have dropped off the register, and given the breakdown of the vote in 2016, this would probably increase the chance of REMAIN being the outcome.
Last week, I wrote about Theresa May having a masterplan under the title “ONCE A REMAINER ALWAYS A REMAINER” ... cynical or what? We could still be playing out her masterplan to REMAIN!
- NO DEAL – BREXIT:
When the UK voted in the referendum. It was a clear choice STAY or LEAVE the EU.
Those who voted LEAVE, did not vote for leave with a deal.
Hard line BREXITEERS state after a clean cut the world will NOT end. It will be very difficult economically and businesses would face huge uncertainty.
So, what do I think?
Either options 3, 4 or 5 will in my opinion be the end result given what I know today. It is really very difficult to predict.
Back to the GBP/USD:
Option 3 = GBP/USD towards 1.2000 on a Labour victory and towards 1.3500 on a Conservative victory.
Option 4 = GBP/USD rallying through 1.3000 towards 1.3500, maybe even 1.4000 depending upon when the second vote would be scheduled. This is based upon the fact the REMAIN vote by all accounts will be stronger on this re-vote.
Option 5 = GBP/USD at 1.2000 on spikes lower until some clarity on the way future appears.
Please bear in mind several studies show GBP/USD fair value at 1.6100. When cable starts to gain strength, it could be the trade of the century across GBP/USD and all the crosses. In the interim however, we have to be careful to try to trade on the back of solid news.
1. FX - FORWARDS, BACKWARDS & SIDEWAYS:
1.1. THIS WEEK’S ECONOMIC DATA:
NOTE: Only the items that interest me are listed here.
1.2. BIAS CHART - USD MAJORS SUPPORT and RESISTANCE:
1.3. USD INDEX (DXY) OVERVIEW – MY THOUGHTS:
The Daily DXY chart is below and my thoughts, ideas and comments regarding the DXY are contained on the chart.
1.4. USD MAJORS - TRADING CHARTS and MY THOUGHTS:
The monthly chart below shows that the EUR/USD is in a down sloping channel.
For the past three weeks we have flirted with channel resistance. However, despite many analysts getting very bullish the single currency, recent EUROZONE data has been poor.
In the past two weeks several prominent EU speakers have talked in terms of interest rate normalization later this year; that was the plan. However, last week ECB President Mario Draghi was very dovish with his commentary. When you look at recent data only the most optimistic person in the world would say that a rate hike is on. From the data produced, I cannot see how the ECB would facilitate a rate hike.
We are now looking at a support re-test of 1.1300 and below that we have the 2018 low of 1.1215.
I think that the EUR/USD has become a sell on rallies pair.
Nothing to do here pre-BREXIT.
The big day is this Monday with Theresa May’s PLAN B being announced.
I will point out though that we have 5 weekly bullish candles of varying degrees on the bounce.
CHINA trade will drive this pair. For now, we are in a tight range of 0.7150 to 0.7215.
CHINA trade news will dictate the direction of this pair. We are in a tight range of 0.6740 to 0.6840.
The “loonie” is being driven by OIL at the moment. I want to be short but feel the best opportunity will be from higher levels closer to 1.3500 / 1.3600.
My plan is to be patient and wait to sell into a RIP higher.
Ultimately this year to keep pace with the FED, the BOC will have to raise interest rates. BOC Governor, Stephen Poloz has stated that interest rate increases will be data dependent, but in all honesty aren’t they all regardless of Central Bank?
Moving forward given my thoughts on the EUR/USD, I think this currency pair has an opportunity to once again break parity.
The weekly chart below shows a very bullish candle.
From last week...”From the chart below the Trend line from 2015 sloping down left to right and the Fibonacci retracement at 61.8% which comes in at 108.40 seems to be a “fight area” for buyers and sellers to compete for control”.
I took the trade I wrote about last week (above), and instead of taking $$$ off the table I sat in it until I took an 80 pip loss.
I remain bearish this pair and ultimately, I feel that a re-test of of c.104.00 is on the cards. Whether it be this week or not is hugely debatable, but I do think it is possible in Q1.
2. THE WEEKLY FX PREMIUM TRADING SUMMARY:
2.1. WEEKLY FX PREMIUM PERFORMANCE:
January 2019 so far: +1,530 net profitable pips
2019 year to date: +1,530 net profitable pips.
The WEEKLY FX PREMIUM is my subscribed based FX support option, which offers, subscribers’ full access to my suggested trade set-ups and my market commentaries.
If you go to my website you will see more information about the WEEKLY FX PREMIUM, including the “SUBSCRIBE” tab at the top of my welcome page.
2.2. SOME OF THE BENEFITS OF SUBSCRIBING:
2.3. WEEKLY FX PREMIUM – TRADING PROJECTION 2019:
2.4. WEEKLY FX PREMIUM SUBSCRIPTION COSTS:
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3. WEEKLY FX PREMIUM SUBSCRIBERS ONLY:
4. THE FINAL SHOT:
Nothing more to add here, I have said enough except,
Always remember longevity in Forex trading can only be achieved through trading with good RISK and MONEY MANAGEMENT, and above all set your position sizes in accordance with the size of your account and allow for some flexibility.
The Pip Accumulator
BLOG VERSION: #308 FREE NEWSLETTER
DATE: 20th January 2019