3 markets to watch - Brexit special

Summary:

• UK parliament to vote on Brexit deal Tuesday 7PM (GMT)

• Outcome could have a major impact on the markets

• 3 markets to watch; GBPUSD, GBPJPY and UK100

As tomorrow evening's key meaningful Brexit vote in the House of Commons draws ever nearer, we take a look at 3 markets which could be highly sensitive to the outcome. For a more in-depth look at the current situation and what could be expected please view our earlier article "Where next for the Pound as key vote loom large" here. 

GBPUSD

After recently falling to its lowest level in 20 months at 1.2410 this pair has recovered somewhat and actually managed to eke out 4 consecutive weekly gains. A GBP positive outcome would further support this recovery and a swift push up to 1.3300 or higher is certainly possible should this occur. Alternatively an adverse market reaction, possibly due to the expectations of a no-deal rising from the current very low levels, may open up a retest of post-referendum lows around 1.20 and a drop below there could see things quickly turn ugly with the most bearish not ruling out a drop to parity.

Source: xStation

GBPJPY

This market is often even more sensitive than GBPUSD when it comes to big Brexit-related moves (it fell further after the 2016 referendum) with the Yen exacerbating swings due to its status as a proxy for risk. Recently, price dropped to its lowest level in over 2 years at 132.74 and this is a key area to watch on the downside. Taking fib retracements from last September’s high we can see that the market is currently back in the 38.2-41.4% fib retracement zone from 139.23-139.78 and this could be seen as key resistance. Price is also back around the 8 and 21 EMAs which remain in a bearish orientation (8 below 21) but a clean break above 139.78 could well lead to a bullish cross and a change in the medium term trend to up.  

Source: xStation

UK100

Stocks in London have enjoyed a fairly bright start to the new year with the UK100 moving up to its highest level in 5-weeks at 6940. This level broadly coincided with the prior support where the market broke down from at the start of December and also the 50 day SMA - an indicator that has done a pretty good job of identifying the trend in the past year. This is now a key line in the sand to watch, with shorts still favoured below there but a decisive break above 6940 would change the picture and allow bulls an opportunity to recoup some of the heavy losses seen in the second half of 2018.   

Source: xStation