Pound on the verge of price turbulence

The British currency will go through a difficult week and the question of Brexit will again be the focus of attention, not only for the traders of the GBP/USD pair but also for the entire currency market as a whole. The demand for risky assets will weaken while interest in defensive instruments will increase again. However, Brexit's topic is too "insidious" to speak with confidence about the implementation of this or that scenario. Despite the high probability of postponing the exit of Britain from the EU, there are other scenarios that cannot be ruled out.

First of all, it is worth noting that Theresa May is still trying to convince parliamentarians with her characteristic perseverance that her version of the deal must be supported on March 12th. Its arguments are quite reasonable, given the unshakable stance of Brussels on amending the agreement. Additional negotiations lasted several months but the prime minister did not manage to get the situation off the ground.


The European Union refuses to provide additional guarantees regarding the time frame of the backstop and this fact has become the main stumbling block between London and Brussels. However, according to Theresa May, who spoke on Friday in the British city of Grimsby, the postponement of Brexit will not solve the problem but can only aggravate the situation. Further transformations in this issue can distort the very essence of the "divorce" from the EU, she added. She also did not rule out that the prolongation of the negotiation process will lead to the cancellation of Brexit as such if the British deputies decide on a repeated referendum.

It is worth recalling that many Britons have revised their attitude to Brexit based on the latest sociological measurements. Therefore, a repeated referendum is likely to retain Britain as part of the European Union. Such a result will affect not only the positions of the current prime minister (Theresa May will most likely retire) but also the positions of the Conservative Party as a whole. The two-year negotiation process is associated with the British in a period of uncertainty and a slowdown in economic growth, as well as a decrease in the country's investment attractiveness. If in the end, Britain will return to zero point, the avalanche of disappointment of Brexit supporters will fall on the conservatives.

Tory representatives cannot fail to understand this, which is why the existing risk of a repeated referendum should worry not only May but also Tory representatives as a whole. This fact to some extent increases the chances of approval of the transaction on March 12, although the likelihood of this scenario is still too small. According to experts, the British deputies can already approve the agreement this week only in case, if Brussels at the last moment changes its position regarding the regime of the Irish border. We are talking about the notorious guarantees of a legal nature, which May has never been able to obtain from the Europeans.

Here, it is worth recalling that the pound strengthened for several hours to the borders of the 31st figure on Friday. Britain responded to rumors that the European Union is trying to find a way out of the impasse and allegedly even made a "new proposal" to London. This information was published in the American press, with reference to anonymous sources from the circle of negotiators. It says that the new proposals carry more concessions in comparison with those suggestions that Tusk and Juncker made earlier. However, a little later it became known that a compromise could not be found that way and the British refused to make concessions.


It is worth noting that the journalists did not know what the essence of the new proposal was. However, this is not so important given the outcome of the Friday talks. But the fact that Brussels is looking for ways to compromise suggests that at the last moment, on the eve of March 12, Europeans can make more serious concessions regarding their previous proposals. A similar step was expected from them on the eve of a key vote on the deal in mid-January. However, Brussels sent only a spatial letter to the British Parliament, which contained only general phrases. According to some analysts, this time the European Union will take a more decisive step that can change the opinion of many parliamentarians.

Despite the existing options, the main scenario is the postponement of Brexit. The pound may respond positively to this fact, firstly this option excludes the onset of chaotic Brexit in March, and secondly, increases the chances of maintaining Britain in the EU. If the parties continue to stand on their own (and most likely they will), the deputies will return to the idea of a repeated referendum in order to avoid the implementation of the harsh scenario of the "divorce process".

In this way, "Price flights" of the pound this week are inevitable and the market will react both to the events preceding the voting and to the "after the fact" events. If we talk about the price range, we can only say about the level of support at 1.2750 mark, which was the bottom line of the Bollinger Bands indicator on the daily chart. The upper limit of the range is difficult to determine. If the events of this week will unfold in the positive note for the pound, the GBP/USD pair will jump at least to annual maximums of 1.3340 and much higher at least to the 35th figure. If by some miracle, the British parliamentarians will approve the proposed May deal.

The material has been provided by InstaForex Company - www.instaforex.com