This week is looking fairly quiet on the economic calendar, however, the trigger of Article 50 is likely to take the majority of the headlines as we approach Wednesday, the day the Prime Minister has informed us is the day the UK official starts formal proceedings to leave the European Union.
Sterling will, of course, be the main focus and with the added US dollar weakness after the failure of President Trump’s healthcare bill GBP/USD could well be the place to keep your focus. Over recent weeks it has been Brexit headlines that have given the pound its upside with sterling trading at an 8 week high against the greenback. The more details we get, the more traders see it as an ease in the uncertainty that has caused the downside. With Article 50 set to be triggered and the formal negotiations about to begin this can only bring more detail, something that should continue to be good news for sterling.
With the prospect of more details however, there also is the prospect of disappointment, as we must ask, what do we expect on the day? Wednesday 29 March 2017 will be a historic day but will we see much movement in the markets, and will traders care. Let’s face it, nothing is going to change on the day, we won’t get any huge announcements on a deal. It’s almost like we just flick the switch, but with no immediate reaction.
For me, the most likely eventuality is that the Brexit formality brings more detail and more upside for cable with a potential test of the upside levels at 1.2700. Of course, we must be ready for disappointment so looking at the opposite eventuality could well see us drop back to 1.2400. However, it all depends on what the market expects, for now, I don’t think it expects much and Theresa May’s announcement that Article 50 has been triggered could well be a bit of a damp squib from a market point of view.
The moves at the back end of last week have seen GBP/USD break through the key upside trend line leaving the potential for a move to the highs. On the daily chart, we are looking at a key bullish signal just needing confirmation. We must, however, be cautious as we have seen some sustained upside momentum on other Sterling crosses with the likes of GBP/AUD, GBP/CHF and EUR/GBP all showing sterling strength. So we must beware of the move being factored in and disappointment causing a sell-off.