So many options this week on what to focus on, however I decided upon BREXIT.
I feel like I have written all the opinions possible on this subject over the past couple of years, but just when I think I cannot add any more another twist shows itself.
It has been said before by many people, myself included, that time is running out and that the UK is in danger of not achieving a deal by the agreed date. In fact, right back at the beginning I quoted the example GREENLAND which took a full two years to exit. GREENLAND never had any of the complexities of membership that the UK has, and I stated on several occasions that periods of squabbles and inactivity would come home to bite the negotiators at the end of the day.
I digress…
Today’s date: 7thJuly 2018.
Referendum vote was on: 23rdJune 2016
David Cameron resigned as UK PM & Tory Party leader: 24thJune 2016
Theresa May replaced him: 11thJuly 2016
BREXIT date: 2300 GMT March 29th, 2019.
Between Theresa May taking office and today almost two full years have passed by and it has to be said that in those two years Tory party squabbles and Cabinet squabbles over BREXIT have dominated her leadership. It is a poisoned chalice of a job, who in their right mind would want to lead, never mind have to try and unite a rabble and then on top of it all deal with the bureaucracy that is the hallmark of the European Union?
Well here we are with less than 270 days to go until the BREXIT date and have we just witnessed the final twist? I very much doubt that but we are so close now to a “hands up”, we give up position.
My question can be asked so many times and connect on so many different levels: “IS A BAD DEAL better than NO DEAL?”.
Here is where I see it over the past couple of days
Friday July 6th , Theresa May has summoned her Cabinet to “Chequers”, the UK Prime Minister’s equivalent of TRUMP’s Camp David.
She had as a pre-cursor to the meeting, which was due to last the day and part of the evening, stating that ALLcell phones and communication devices, including smart watches were to be removed from the meeting participants, tough stuff indeed to stop leaks. She also stated that “The Cabinet has a duty to agree a BREXIT Plan”.
This is really important. The UK is a democracy and the people as far as I can remember voted to leave the EU. This has dragged on and on because politicians believe that they know better. The bottom line is that Prime Minister May is 100% correct the cabinet has to agree something.
Theresa May basically has to put forward a massive compromise to enable all cabinet members (Remainers and Brexiteers) to sign on to the white paper statement.
One problem that Prime Minister May has is that she has for over a year talked about RED LINES that cannot be crossed and several leaks of the white paper intimated that one or two of the previous RED LINES may now be a little pinkish! This provoked 7 BREXIT members of the Cabinet to have a side meeting ahead of the crunch session at Chequers.
The main issues on the table pre-chequers session were: –
TRADE RULES FOR GOODS & SERVICES.
BORDER CHECKS BETWEEN IRELAND and NORTHERN IRELAND.
THE UK FUTURE RELATIONSHIP REGARDING THE EU CUSTOMS UNION.
Theresa May goes into the cabinet meeting with the full knowledge of what the EU27 led by chief negotiator Michel Barnier wants the UK to accept.
The EU want the UK to take the “NORWAY” pseudo membership. That includes free movement of people = RED LINE, plus it stops the UK being able to negotiate its own FREE TRADE deals = RED LINE.
The UK could adopt the “CANADA” deal. But that would involve a border between IRELAND and NORTHERN IRELAND = RED LINE.
Theresa May has had a pre-chequers meeting with Angela Merkel probably to sound her out as I am certain that the EU wants to draw a line under BREXIT sooner rather than later as this is holding up EU and EUROZONE progress… that comment was tongue in cheek!!
Failure now to move forward = NO DEAL and a WALKWAY. That must be considered bad for all parties. This is why I think Theresa May went to see Merkel to put her cards on the table.
So, I ask my question again from an EU27 viewpoint “IS A BAD DEAL better than NO DEAL?”
Compromise must be met. I know that the EU is absolutely sh*t scared of an EXIT CONTAGION through populist parties seizing the opportunity should the UK get what Barnier has called “Cherry Picking” and as a result he has been resolute in negotiations but there comes a time, if you get my drift!
I do believe that a deal will be done eventually, of which, handshakes will be made but all participants will probably never be happy, but a deal must be done.
That very briefly from a macro viewpoint is the backdrop from my perspective.
Below is a picture of the cabinet as it stood at midnight on July 6th, 2018. Let’s see how many faces we can black out over the next week or so.
PLEASE NOTE THESE TIMELINES:
*The above section of the article was written over the 5thand 6thof July.
*The following section was written in the morning (AST) 7thJuly 2018 and the blog will be proofed and posted the evening of 7thJuly (AST).
So, here we go.
The headlines hit and it’s a success for Theresa May as she wins Cabinet backing for a UK soft Brexit blueprint.
I never really understood the SOFT / HARD BREXIT terminology. The EU will insist it’s a HARD BREXIT for CONTAGION issues already mentioned.
Theresa May has allegedly found her spine and told cabinet members this blueprint is now Government Policy, if you criticize it you must resign… finally, leadership.
The “blueprint” shows the future of a UK – EU “free trade area” with custom regimes defined with a common plan for industrial and agri-foods goods.
New arrangements will have to be made for the Banking and services sector (80% of the UK economy!) to “preserve the mutual benefits of integrated markets”.
It’s NOT a done deal. The EU will want to weaken this even further and I believe BREXIT MP’s not cabinet based will wonder WTF David Davis, Boris Johnson and Michael Gove for example were thinking in agreeing to this!
Then it still has to go to the EU!
If the EU rejects these proposals, then I believe we have a fallen UK Prime Minister one way or another. If Theresa May loses her position as leader of the Conservatives and UK Prime Minister the uncertainty and confusion that would follow would be a major event and that is an understatement of immense proportions. The BREXIT dates you can forget about.
The “blueprint” at the end of the day, I believe will be tantamount to a “TAKE IT or LEAVE IT” discussion.
My question once again is “IS A BAD DEAL better than NO DEAL?” – this applies to both the EU27 as well as the UK.
Let’s see what happens now….
Moving on…
With all this said and done, we then have to consider only fleetingly in my opinion the BOE. Carney was off again last week talking up the UK economy and we also heard from a MPC HAWK, Michael Saunders sounding off that a one and done rate hike in 2018 may be too cautious.
In the name of sanity, AIRBUS, LAND ROVER and BMW (MINI) have all been in the headlines in the last week talking about production moves, no further investment and the like based upon the BREXIT uncertainty.
I just cannot see any sane Central Bank Governor raising interest rates given the current economic and political backdrop, then again only the BOE could have employed Mark Carney to replace Mervyn King. The “unreliable boyfriend” has no fears about U-turns and creating additional confusion.
So, let me answer my question. In my opinion a BAD DEAL is better than NO DEAL at least all parties have an agreement and uncertainty in commerce and industry is taken away. At least the UK and EU Business leaders would know what the score was.
Cable…
It all depends on a deal being struck.
Cable (GBP/USD) is ready to leap as soon as a deal is agreed on BREXIT. With a BAD DEAL the currency may dip, which in my opinion would be a buying opportunity and it would be scooped up. Basically, around say 1.2860 (61.8% Fibonacci retracement from the 2016 lows of 1.1914 to the recent highs of 1.4364) should we get there would probably be seen as a “BUY THE DIP” opportunity.
Where could the pair rise to. Initially the 1.4364 is the obvious target and then the round number of 1.5000 is often talked about.
For me, this is when the BOE could step in, should the economic data stabilize and then improve. Interest Rate normalization would then become the talk of the BOE MPC meetings. Interest rate policy would lean towards normalization. However, at the same time, the UK would be playing catch up with the FED, so whilst there would be no Central Bank divergence, the relationship from a FX perspective with the EUR/GBP would be as interesting to follow as the EUR/USD.
These potential moves in the GBP would be reflected across all the GBP crosses.
Subscribers to the WEEKLY FX PREMIUM (subscription service) are already prepared with several GBP BREXIT trades and I have many more to add. Even though BREXIT has yet to be signed off I am still taking $$$ and pips out of what I call my BREXIT trades in this interim period.
What I do know, and I can say without fear of contradiction, whether you agree with the above or not, is that the path for the GBP currency no matter what happens will NOT be a straight line and for that reason we must trade with restraint and mange position sizing accordingly.
FOREX REVIEW:
1. FX – FORWARDS, BACKWARDS & SIDEWAYS:
1.1. THIS WEEKS TRADE INFORMATION: ECONOMIC DATA:
NOTE: Only the items that interest me are listed here.
1.2. THIS WEEKS TRADE INFORMATION: GEOPOLITICAL EVENTS:
1.3. BIAS CHART – USD MAJORS SUPPORT and RESISTANCE:
1.4. USD INDEX (DXY) OVERVIEW – MY THOUGHTS:
As you can see from the chart below, USD weakness has set in over the past week. The simple facts are though that so far, the retracement has been very shallow from the highs of 95.54 and we are just at the 23.6% retracement level at the moment. I would be expecting at least to see 93.14 the 38% retracement. At this level we may resume the move higher.
Should we NOT move higher, then, we are maybe in line for a corrective move lower.
At the moment I would not be getting too excited, the move so far has been very orderly. It could of course change but for now I would see this as nothing more than normal price action following the move above 95.00.
Down to the 38% Fibonacci level still leaves the BULLISH move intact.
1.5. USD MAJORS – TRADING CHARTS
EUR/USD:
A few points to mention here.
Firstly, we have a nice developing upward trend into the close. The move above 1.1720 opens up a move higher to 1.1850 in my opinion.
However,
Secondly, we still have Central Bank divergence to consider and the interest rate differentials look as if they are just going to widen and widen before Mario Draghi even considers raising interest rates as an ECB policy
And,
Thirdly, the BEAR FLAG with its measure move to 1.1000 is still in play until we break above 1.1770 in my opinion.
GBP/USD:
We are now reacting to a descending wedge break out as you can see on the chart below.
Upward moves towards the 200 DAY SMA at 1.3586 would be a gift to short from, an early Christmas but in reality, I just cannot see this level being achieved unless a BREXIT deal is completed and announced.
AUD/USD:
No change in opinion from last week:
Last week I talked about “SELL THE RIPS”. We are below trend line resistance and shorting around the trend line resistance of 0.7540 around the 61.8% retracement makes some sense to me looking forward.
Whether we are in a larger corrective move is “STILL” out for debate at the moment in my opinion.
NZD/USD:
We ended last week with a bullish HAMMER candle.
We still have a BEAR FLAG measured move to the “John Key” level of 0.6525.
Plus, there is a Head and Shoulders pattern on the chart below with a measured move to 0.6340.
I think that this is a SELL THE RIPS trade and from present levels through to 0.6950 the neckline of the Head and Shoulders pattern will offer up several shorting opportunities.
USD/CAD:
We are still in break out mode despite two weeks of pulling lower. 1.3060 (PALE BLUE LINE) represents the breakout point and this should represent the ideal entry level to enter long.
USD/CHF:
No change from the past few weeks: –
Looks like a nice BULL FLAG coming into play very soon.
USD/JPY:
Not wanting to sound boring, but, no change from last week despite all of the geopolitical news.
A nice triangle break will be on the cards very soon.
At the moment the pair looks bullish and a bullish break would favour many people. However, the pattern has been maintained in a very orderly fashion and it is quite likely that we see this pair pushed lower from trend line resistance c.111.00.
Time will tell.
2. THE WEEKLY FX PREMIUM TRADING SUMMARY:
2.1. INTRODUCTION…SOMETHING TO CONSIDER:
Trading with me via the FX PREMIUM option is a relative low-cost option to give you some or all of the following: –
Confirmation of what a trader who actually trades his trades, thoughts and ideas is doing and thinking in real time.
I am a long term “POSITION” style trader at heart. I believe in FUNDAMENTALS first. If you are a TECHNICAL trader first this could be a good fit. I have a proven record.
I DO NOT trade if I do NOT see a trade.
I am a disciplined trader. I have my TRADING PLAN, plus my RISK, MONEY and HEAD MANAGEMENT rules that I stick to.
If your trading is NOT as smooth or rewarding as you would like, even if you just captured just 50% of my trades due to geographical location issues, you should still cover the cost of a subscription if you traded single mini lot trades in a year.
I tell it as I see it. I am not interested in bullsh*t.
You can get on board and join my FX PREMIUM subscribers and subscribe to the “10,000 pips a year” group from as little as CAD$10 for the first 10 days and then CAD$150.00 per month, currency conversions for CAD$150 are roughly as follows: –
GBP £90 per month
EUR €100 per month
USD $115 per month
JPY 12,500 per month
AUD $160 per month
NZD $170 per month
CHF 115 per month
Go to my website www.weeklyfxdrivethru.comfor more details under the TAB – “SUBSCRIBE”.
2.2. WEEKLY FX PREMIUM PERFORMANCE HIGHLIGHTS:
July so far: 498 net profitable pips
2018 to date: 8,430 net profitable pips
2.3. WEEKLY FX PREMIUM PERFORMANCE SUMMARY:
(Incorporating the last 5 WEEKLY FX PREMIUM TRADES)
3. WEEKLY FX PREMIUM SUBSCRIBERS ONLY:
3.1. TRADING REVIEW:
3.2. OPEN TRADES… HOW WILL I TRADE THIS WEEK:
3.3. MY FUNDAMENTAL & MACRO THOUGHTS THRU THE YEAR:
3.3.1. EUR:
3.3.2. GBP:
3.3.3. AUD:
3.3.4. NZD:
3.3.5. CAD:
3.3.6. CHF:
3.3.7. JPY:
3.4. THE MARKET SENTIMENT CHART:
3.5. CURRENT LIVE TRADES, LIMIT ORDERS and BREXIT RELATED TRADES:
3.5.1. CURRENT LIVE TRADES:
3.5.2. CURRENT LIMIT ORDER TRADES:
3.5.3. BREXIT RELATED TRADES:
3.6. FX BROKER NEWS:
4. THE FINAL SHOT:
Nothing more to add here, I have said enough except,
As usual…
Always remember longevity in Forex trading can only be achieved through trading with good RISK and MONEY MANAGEMENT, and above all set your position sizes in accordance with the size of your account and allow for some flexibility.
Scott Pickering
The Pip Accumulator
Twitter: @pipaccumulator
https://weeklyfxdrivethru.com/disclaimer/
BLOG VERSION: #289 FREE NEWSLETTER
DATE: 8thJuly 2018