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Sterling in Free Fall as No-Deal Brexit Could Become Reality… Soon

Sterling was in free fall last week after both UK and EU admitted that a no-deal Brexit is more likely than not. Negotiation deadline was ended to end of Sunday. Euro and Dollar, followed as the next weakest and focus turned to rally in commodity currencies. In particular, Australian Dollar was pulled up by surging iron ore prices on supply disruption. Canadian Dollar was also strong as oil prices resumed rally. But New Zealand Dollar and Swiss Franc were even stronger.

For the near term, reactions to Brexit talks will be the biggest focuses in the early part of the coming week. In particular, movements in European-Sterling crosses would be watched closely. As for the rest of the month, the next move in stock markets, another up leg or a correction, would decide how Dollar flares before year-end.

GBP/CHF and EUR/GBP to gauge market reactions to Brexit talk outcome

At the time of writing, Brexit trade negotiations are still carrying on. Both UK and EU admitted that a no-deal Brexit is the more likely scenario. But who knows if there would be anything dramatic out of Sunday’s deadline. We’d pay special attention to European-Pound crosses on Monday to gauge market reactions.

As for GBP/CHF, in case of a positive surprise, decisive break of 1.2203 resistance is needed to confirm that Sterling bulls are back. Otherwise, the upside moves are viewed as knee-jerk reactions only, and the Pound would be just back to “normal”.

However, in case of a negative outcome, decisive break of 1.1598 support would carry some larger bearish implications. That would seal the case of rejection by 55 week EMA and the long term down trend in GBP/CHF could then be resuming through 1.1102 low, possibly to 61.8% projection of 1.5570 to 1.1701 from 1.3310 at 1.0919.

For EUR/GBP, firm break of 0.8861 support is needed to confirm Sterling’s rebound. Otherwise, the choppy rise from 0.8670 would still resume at a later stage. On the other hand, firm break of 0.9291 resistance will firstly bring a test on 0.9499 high. More importantly, that would also suggest resumption of the up trend from 0.6395 (2015 low) to 0.9799 (2009 high).