The current European trading session has seen a “moderate” downturn in the GBP/USD, FTSE 100 Stock Index, despite the “No Deal” Brexit. However, the result of today’s negotiations on the UK’s exit from the EU, and the details of the European Council’s assessment of the situation, appear to have done little to improve the outlook for today’s trading session. Here are the key points from the announcement, released by the European Council, as it relates to the economic impact on the UK’s economy and financial services sector.
The impact will be felt on all four of the euro area countries that have opted to leave the union: Spain, Italy, Portugal and Greece. It’s also likely to affect UK exports to the remaining countries as well. Those seeking a stronger indication of the potential outcome than this brief assessment of the discussions, should look at the prices and fluctuations in the currency markets.
If the exchange rate falls too far, the news is not positive for the GBP/USD, FTSE 100 Stock Index. This may cause volatility in the index but that volatility is best contained in the short term by the trading day, and by even moderate volume to avoid the “flash crash” symptoms.
Overbought conditions are likely to continue and those seeking greater reassurance about the GBP/USD, FTSE 100 Stock Index outlook should hold onto their positions. The main reason for overbought conditions is to do with the uncertainty of the financial system following the uncertainty caused by the vote for Brexit. Any move higher in the GBP/USD, FTSE index is unlikely.
In contrast, if the exchange rate rises, and it is anticipated to rise, the future scenario is likely to be better for the GBP/USD, FTSE index. Further stability will be provided by the “emergency liquidity assistance”, put in place to ensure payments to financial institutions. The GBP/USD FTSE index should then move higher but may again experience a bout of volatility in the middle of next week, as the conditions of the emergency liquidity assistance, and the renewed uncertainties surrounding the markets and exchange rates, become clearer.
This is where a trader looking for a break to support the GBP/USD, FTSE index, would be best advised to trade short positions to lock in gains. Trade short positions if the index reverses and is likely to reverse as a result of the “No Deal” Brexit.
A lower level for the GBP/USD, FTSE index at the conclusion of the two-day Bank of England meeting will create an opportunity for investors seeking stability, in that an increase in the national budget deficit to 5% of GDP, rather than the initial forecast of 4.5%, could soon raise inflation and weaken the exchange rate. On the other hand, if the summit is postponed, or the deficit reduced by reducing the public sector deficit, then inflation could be low, and the exchange rate higher.
In the most optimistic scenario, the outcome of the negotiations in Brussels has no impact on the GBP/USD, FTSE index, but traders should keep a close eye on any movement of the index into a range over the next week. If the initial forecasts of a rise are met, then the GBP/USD, FTSE index could trade into a range, with potential benefits to either side.
Investors should keep track of major events related to the negotiations as they relate to the impact on the financial services sectors, and any reaction from the central banks. Most analysts expect the political uncertainty to result in a weakening of both the USD/GBP exchange rate and the GBP/USD, FTSE index.
Most forex brokers and analysts recommend selling short positions in the GBP/USD, FTSE index, for the next two weeks. Only those who are seeking higher returns should consider shorting GBP/USD, FTSE index, given the challenges that face the currency pair. markets as a result of the “No Deal” Brexit.