The pound suffers more ups and downs over Brexit but we're only at the start
At the moment, there's more downs than ups and in the topsy turvy world of Brexit trading, one thing is certain, it's a right royal mess.
The pound is mostly down due to the House of Lords getting all their amendments booted out by Parliament. Why is it down when the government said all along that they intended to pass the bill un-amended? It's because we have people trading the quid that don't understand UK politics. We've had ups when certain amendments were put forth, and downs when they got rejected, and vice versa. We've seen the quid move over soft or hard Brexit yet neither of those scenarios have even come close to light yet.
The bill going to the House of Lords was never intended to be anything more than what authority May would give Parliament during the negotiations, not what EU negotiations the House of Lords wanted added to the list. As I've said previously, the more power Parliament gets, the more messy this divorce will become as every party vies to push their own agenda. The cleanest trade for the pound is giving Parliament as little voice as possible during negotiations so that May can negotiate fully with one opponent only, the EU. If she's negotiating the negotiations with four parties while at the same time trying to negotiate with the EU, we're going to get more of the same volatility and topsy turvy trading.
The fact of the matter is that this is an unprecedented situation. There is no real comparison to other similar historical events. The market has moved in directions completely opposite to what it should have done on certain news. One minute the market is hoping for a reversal of Brexit and pushing the pound up, the next it's whether art50 will pass, and when May said the UK was leaving come what may, the pound went up on that too. Two opposing scenarios and eventually we see the same move in the pound. It's crazy and we've highlighted that all the way through. The problem is that it's very hard to trade when you know the pound should be moving one way but traders are pushing it the other way. It's one thing fighting a market that is wrong, it's another fighting a market that doesn't understand and can change tack on a whim.
As I've also mentioned time and time again, article 50 is just the start of Brexit. The real battle will come in the negotiations. I'm hoping trading the pound will become clearer and more normal as it will simply boil down to how good or bad negotiations go for the UK. If we face an EU brick wall at every turn, expect the pound to go down. If there are glimmers of hope (or something more substantial) that we can get a decent deal, the quid will shoot higher. At each stage and subject of the negotiations there will be a battle, and the pound will move on each result of that battle.
If one side starts scoring more points than the other, the pound will lean with that leader. If that's the UK, it's up, if it's the EU, that's down. This is the simplest way to approach trading the pound from here on out.
Forget the Article 50 noise. It's coming, it's happening, it doesn't change anything except to properly mark the start of the negotiations and two years of more uncertainty, arguments, inexplicable moves and crazy headlines. If you want to know the best trade, it's doing what I'm doing now and leaving the pound well alone until we start to see it trading normally.
Just like the Brexit vote there's an excitement in trying to grab what could be enormous moves, and we don't want to miss out. Who doesn't want to be in on the start of a 3000 pip short squeeze? The problem for us mere retail traders is that if we get into that boat, we could find the pound down another 2000 pips before we get that 3000 pip squeeze, and I'll wager there's very few of you whose accounts could weather moves of that magnitude. I've been in this game a long time and I've become a pretty good judge of risk, and Brexit might be one of the biggest trading risks I've ever seen, and that's too much for me. Yes we can trade the short-term levels like any other pair but the long-term game is far more risky, and the short-term traders need to be on their guard for big price moving news.
Don't be in a rush to trade the Brexit result now as the picture will become much much clearer over the months ahead. Don't be in a rush in trying to pick a bottom or top, let the market and the EU/UK have the fight while you prepare to pick up the pieces later. As far as your trading goes, be the shepherd not the sheep.
There's plenty more to come from Brexit
