Since the referendum for Brexit held in June 2016, the time has finally coem for the UK to leave the European Union (EU).
Right after the referendum results were announced about three and a half years ago, then Prime Minister David Cameron tendered his resignation. Perhaps, the wise man knew it would be a difficult task to lead the nation out of the EU among 27 other countries.
When Theresa May became the Prime Minister, there has never been a day of peace whenever it came to the Parliament meeting on Brexit matter.
Since then, PM May has requested for two deferments of Brexit as of end March 2019 and again, extended to end October 2019. Currently, the new Prime Minister Boris Johnson who succeeded May in July 2019 has failed to deliver Brexit and is asking for a third extension with EU leaders.
Johnson has been a hardcore supporter for Brexit and voicing his way to the solitaire nation since the referendum days. When he took over the Prime Ministerial office, he even mentioned that he will lead Brexit at whatever outcome it may, and shut down the Parliament for 5 weeks till mid-October. While British citizens and lawmakers expressed anger and complaints over the act, PM Johnson sought his way to talk to EU leaders in mid-October on a possible deal.
When the EU leaders agreed it is viable, Pound shot up to a five-month high above 1.3000 against the dollar. The market became short-squeeze and spiked up 800 pips over two weeks!
Since June 2016, the pound-US dollar has fallen off the 1.5000 benchmark and has never yet seen this level again. Market veterans have predicted for the pound to weaken gradually over the years as Brexit takes place, reasons being triggered by a shrinkage in economic growth.
Apparently, the shortage of labor, bilateral tariff among EU nations, cross-border investments, banking facilities and financial transactions will all be jeopardized after Brexit becomes effective.
Right now, most UK lawmakers have rejected the bill presented by Johnson, pushing him to request for a third extension to Brexit. Facing the strong opposing forces, PM Johnson threatens to scrap the Brexit bill and go for another general election before December.
On the other hand, EU leaders are obliging to extend the deferment to 31 March 2020 as they do not want to be seen as the “catalyst” that triggers the economic recession of UK nation.
By geographic presentation, the UK consists of four states namely England, Scotland, Wales and North Ireland. Under the Brexit deal, the UK will leave the EU except for Northern Ireland which will continue to follow all the custom regulations on agri-food and industrial goods.
Sadly, this topic has become a big argument if North Ireland should stay as a “backstop” custom or scrap completely from EU custom laws.
With regrets for opting the Brexit, many lawmakers and British citizens are proposing for another referendum for a final decision.
Nevertheless, EU leaders are reluctant to accept such proposal and insist for demanding the “divorce bill” at approximate 0 billion pounds once Brexit activates.
According to our opinion, the pound is subject to much whipsaw trend towards year-end. If the Brexit delay is approved due to extension of Article 50, we presume the pound-US dollar will float within 1.2500 to 1.3200 range with high volatility over December.
Separately, the reality of Brexit will only plummet the pound into a long-term bearish trend should the “divorce” happen in near future.
On the downside, we should observe the 1.2500 and 1.2000 benchmarks that will be crucial to hold the market in case of fear factors emerge in Brexit era.
On the contrary, a firmer trend in European currencies in coming months due to delay in Brexit and stimulus of Euros will nudge against the Dollar into lower level. Have fun trading.
Dar Wong is a veteran with 30 years of trading experiences in global market. The expression is solely at his own. He can be reached at [email protected].