Brexit the never-ending saga is due to come to an end on the 29th March. The government is preparing its residents for the break-away with regimented advertisements of advice broadcasted on television, newspapers and radio.
What does this mean to the markets and how are policymakers trying to curb the obvious effects to the traditional financial powerhouse that is London? We all know the deep ramifications that Brexit will have upon the British economy, but will this materialise and how can we as traders be better prepared?
The case of a deal being reached, then we know for sure that economic growth in the United Kingdom will be affected. There already has been a destabilising effect since the conclusion of the referendum on the 23rd June 2016. Since then sterling, (GBP), has dropped 14% lower than it was before the referendum and the economy has slowed to 1.3% growth in 2018.
The situations of a hard Brexit leaving with no agreement in place would leave the Uk in a tight spot, as being a European member ensures that there no tariffs on trade, this situation would cease thus meaning all exports from the UK could be imposed with a new tariffs therefore making them less competitive, which inevitably lead to lower demand,( it is worth noting that the weaker sterling could help these exports, but with the conclusion of Brexit, the sterling should show a little more bullish sentiment in the long term). Generally, a hard Brexit would bring a long term cloud of gloom over the Capital and thus the rest of the Uk. Employment would decrease, real estate prices would fall and the numerous privileges that are granted by being a European member would be revoked such as the free ability to bid for tender on public contracts anywhere within the EU.
A soft Brexit would be a more likely scenario as the economic impact would be lower and more stagnated than a hard exit. Having the ability to be independent but at the same time tied within European Single Market, (like Norway), or within the European customs Union. There is also the possibility that being part of both are possible but then the primary driver for the majority of the 51.9% of the voters that voted to leave the European Union would not happen, (these voters were mostly swayed by anti-immigration).
The economic repercussions are wide and varied but as traders we must try to see past the “noise” and focus on the certainty of a projected scenario. Brexit is currently an uncertain event as nobody can actually predict exactly what will happen due to the complexities of many faceted negotiations.
Over the next 28 days the preparation that we do as traders is to prepare for three scenario’s, a hard Brexit, a soft Brexit or a no deal eventuality. Focus on a single instrument at time and construct the consequences for each scenario then paying particular attention to the specifics of the chart, (key levels of support and resistance etc).
Please remember that the market is forced into erratic behaviour by the typical culprits, fear and greed. When there is such sentiment in the market there is always opportunity, take advantage of it but please do so in a way that is safe and manageable.
For more information and guidance on what to trade and how-to trade be sure to visit our dedicated forums for our clients and stay tuned to all future news and information releases by Ice FX.