GBP/JPY on watch as focus turns to parliament Brexit vote
Fawad Razaqzada October 17, 2019 1:09 PM
The pound initially gained further ground when news emerged that the UK government and EU had secured a Brexit deal. But in a classic case of “buy the rumour, sell the news,” sterling sold off from its highs quite rapidly. Some market participants undoubtedly booked profit while some looked for opportunistic short trades to take advantage of the overbought prices and amid expectations that the UK parliament will reject the deal on Saturday.
The DUP has already announced it cannot support the new arrangement, while the opposition party’s leader Jeremy Corbyn has called it "an even worse deal than Theresa May’s, which was overwhelmingly rejected." So it remains to be seen whether the new deal will be approved on Saturday, which means there is still a chance for a no-deal Brexit – although the more likely scenario would be for Prime Minister Boris Johnson to request a Brexit deadline extension, which then opens up more uncertainty.
So, there is a possibility that the pound crosses could gap lower at the open on Sunday night in the event that parliament rejects the deal on Saturday. This outcome could also impact risk assets negatively, so the likes of the major indices and yen and gold could all be in focus. The GBP/JPY is therefore one to watch for negative price action in the event the deal fails to pass on Saturday.
Technically, the GBP/JPY has reached potential resistance in the 140.00-141.00 region, so a pullback of some sort should not come as surprise. As well as old support, this area is where we have the 61.8% Fibonacci retracement level coming into play. So far, the pullback from the highs can be thought of as normal retracement in an uptrend. However, price is currently struggling to hold above Wednesday’s high at 140.10, which is potentially a bearish outcome. A close below support and the 200-day average at 138.70 would be bearish as that would create an inverted hammer on the daily.
So, watch the GBP/JPY closely as we head towards the end of the week and towards Saturday’s parliamentary vote. Traders pre-empting a rejection of the deal could apply downward pressure on rates ahead of the weekend. Post weekend, what it does will depend almost entirely on the parliamentary vote.
Source: eSignal and FOREX.com.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.