What to expect before Article 50 being triggered
BEFORE ARTICLE 50
Although the road leading to triggering Article 50 has been full of twist and turns, one thing remained a constant destination. The process of starting Brexit and triggering article 50 would happen by the end of March. The Prime minster being, maybe the only constant, is indeed giving the people what they want and she has successfully navigated us to this very point.
The outcome is not if, but when Article 50 will be triggered. Much of the market’s volatility leading up to this point, especially in the GBP has been down to traders speculating that Brexit may be delayed or may not happen at all. This is now all wishful thinking. What the market do between now and when article 50 is triggered is to discount the ‘known’ facts and prepare for the ‘unknown’ of what actually will happen during Brexit negotiations.
There are a few other factors that will have to be considered by traders in the FX markets.
- The March US FED hike and the strong possibility of a June hike
- The fact the EU said trade negotiation could take 15 years
- The ‘special relationship’ with the US and our ability to do a deal with the world’s biggest market
During now and triggering article 50 there will be attention on the GBP and the EUR. Having seen the GBP/USD testing below 1.20 there is certainly room on the downside for traders to push the GBP lower, with rate hikes in the US making the USD ever more attractive in times of uncertainty. I would say that any push lower would be a ‘squeeze’ for the inevitable bounce in the GBP, 1.15 would be an absolute low in my opinion.
The reason for this is that the speculation on the unknown is to some degree removed. We still do not know the outcome of Brexit, but we have a plan and are sticking to it. This will invariably give the GBP bulls room to buy lows and to find value. After all, in global terms, where else is a good currency? The EUR is certainly likely to be a target for speculators betting on EU ‘contagion’ and the US (USD) although on paper is economically still strong, its leadership still leads a lot to be desired.