Summary:
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UK parliament to vote on Brexit deal Tuesday 7PM (GMT)
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Outcome could have a major impact on the markets
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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.
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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.
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.
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.
