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Traders Say ‘Meh’ To 6-Month Brexit Flextension

Published 11/04/2019, 09:28
GBP/USD
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The EU granted the UK’s flextension until 31st October, four-months longer than PM May requested. Yet whilst today’s ‘meh’ reaction points towards Brexit fatigue, the coiling nature of GBP suggests volatility could be brewing.

It was more a question of how long an extension would be over whether one would arrive. With Brexit delayed until October 31st, the EU appeared to have taken the middle ground between May’s request for a short extension and calls for 9-12 months from some EU members. This essentially provides the UK government over 6-months of further quarrelling and heckling in a bid to agree with a majority how they would like to leave the EU. Assuming they do.

By a thin margin, GBP is currently today’s strongest major although it would be easy to miss, with cable notching up a 17-pip range. Today’s ‘meh’ reaction perfectly encapsulates Brexit fatigue, as such a headline even just a couple of months ago may have provoked a noteworthy reaction. Kicking the can down the road does little to appease investors who remain uncertain of how a post-Brexit Britain will fare, and investors (or traders for that matter) don’t like uncertainty.

GBP Large Speculative Positioning

Open interest on GBP futures are near their lowest levels in 5 years. Although net-short exposure has risen to its least bearish level since late 2017 (and not far from flipping to net-long) it accounts for little if volumes have dropped to the point that speculators appear hesitant to speculate. So, until progress of an outcome is made (one way or the other) GBP could prove to be frustrating to position trade over any meaningful hold-time.

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Birtish Pound - US Dollar 1 Day

Still, volatility tends to arrive when you least expect it, so perhaps the coiling nature of cable could be indicative of a surprise. We can see on the daily chart that GBP/USD chopping its way down to the December trendline, forming a triangular pattern and meandering its 200-day eMA’s.

Whilst this currently underscore cable’s directional indecisiveness, we should remember that volatility is bipolar, so we shouldn’t take our eye off the ball as GBP/USD could be building up for a more exciting move.

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.

Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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