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Boris Brexit Stalemate Fears- The GBP Forecast

ICE Markets

Boris Johnson has been elected as the current head of the Conservative Party and subsequently the new Prime Minister of the United Kingdom. The predicted news broke at lunch time yesterday, prompting traders to question what this could mean for the GBP moving forward.

Most prominently Boris has little chance of being able to deliver a successful Brexit deal with the EU and therefore indicating that a ‘No-Brexit’ deal is imminent. This will subsequently impact the GBP which has already experienced huge losses recently, causing potential further decline to occur. This will be particularly likely if Boris is forced into a General Election, where the current political stalemate could continue or the opposing Labour Party could come into power. Boris only has until the 31st October 2019 to deliver a Brexit deal, signifying that the chances of this being successful are minimal, under the tight timeframe. This could mean further downturn for the GBP/USD pair, reminiscent of March and April 2017 when the Brexit Referendum occurred. When looking back at the technical analysis we can see that $1.2365 was reached in April 2017, and that prior to this in January 2017 the GBP/USD was even lower at $1.1982.

GBP/USD PRICE CHART WEEKLY TIMEFRAME (MAY 23, 2016 – JULY 24, 2019)

Long term factors for traders to consider over the up and coming months which could affect Sterling are as follows: a General Election could occur and the Labour Party opposition could come into power, alternatively a hard-line vote for the Brexit Party could take place resulting in further stalemate. Another possibility is that the United Kingdom are called to vote on a second Brexit Referendum that could again be won by ‘leave’ supporters. When considering the short-term forecast the outlook for the GBP is negative. The chart signifies a downward slope for the GBP/USD pair which has been prominent since May this year, this could well drop below the channel line of $1.24.

GBPUSD PRICE CHART, DAILY TIMEFRAME (MAY 3, 2019 – JULY 24, 2019)

Despite the negative outlook outlined above a short-term rally cannot be ruled out at this stage. As incoming Prime Ministers in the United Kingdom often cause a short ‘honeymoon period’ to occur, which could see the value of Sterling increase. If this is to take place then a rally back to the resistance line of $1.2550 is possible, although the 14 day strength index (RSI) indicates that Sterling has been oversold.
At the time of writing the GBP/USD was at $1.24946.

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