Market Analysis

Sterling pressured ahead of key EU meeting over Brexit

The British pound has started the new trading week on a soft footing below the 1.3100 level against the U.S Dollar, as investors stay cautious towards sterling ahead Wednesday’s EU leaders meeting in Brussels. Brexit fatigue is causing the British Pound to slip, as traders and investors appear less enthusiastic towards another minor extension of Article 50.

British Prime Minister Theresa May has already requested that the European Union grant the United Kingdom until June 30th to finalize another Brexit agreement. PM May reluctantly sent a letter to European Council President Donald Tusk last Friday to officially request the brief extension.

Most political analysts expect that European Union leaders will allow the United Kingdom more time to resolve the deadlock currently underway in UK Parliament over Brexit. If EU leaders were to deny the UK a further extension of the Article 50 agreement, the UK government would then be faced with two main options.

Firstly, the UK government would have the option to cancel Brexit, although it would be deeply unpopular and possibly unpalatable for Brexiteers inside the ruling Conservative party. The other option would be to leave the EU with no-deal, which also seems unlikely, as UK lawmakers have already voted that the UK would not be able to leave the European Union without a deal in place.

The other potential options on the table could include UK Parliament accepting PM May’s current Brexit deal or the UK holding a second referendum over Brexit. It is clear that if the EU deny the United Kingdom a Brexit extension, the UK would face a race against time to stop the UK leaving the EU before the April 12th deadline.

Political analysts also believe that European Union leaders are more likely to agree to an extension of Article 50, given that the European economy is currently experiencing growth problems and the EU trading block can ill-afford a potential economic shock such as Brexit, which could lead to the eurozone falling into an economic recession.


GBP/USD Daily Mountain Chart Source-Activtrader Platform

GBP/USD Daily Mountain Chart | Source: ActivTrader 


The GBP/USD pair is likely to remain under technical selling pressure while trading below the 1.3100 resistance level, with the 1.2980 level the key weekly support region to watch. If the GBP/USD pair starts to slide below the 1.2980, further technical selling towards the 1.2840 and 1.2770 remains likely. Key upside resistance above the 1.3100 level is found at the 1.3180 and 1.3300 levels.


Written by Nathan Batchelor, External Analyst

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