The pound surrenders its election gains and is now left wanting once again
It has been a quick turnaround for the pound as Brexit focus has become the immediate concern - no thanks to Boris Johnson spelling out the dangers of a no-deal Brexit.
What was supposed to be the focus on a smooth Brexit process by 31 January 2020 has now turned into a major headwind for the pound, as Johnson plans to amend his Brexit deal to rule out any extension to the transition period by the end of next year.
That means if the UK fails to negotiate a future trade relationship with the EU over the period of eleven months (or so) then they will crash out without a deal - essentially wasting all the time that we have gone through in extending the Brexit deadline since March.
All that said, it isn't just doom and gloom for the pound. There is still the potential for trade negotiations to go well and in that lieu, it stands to reason that the pound should not crater just because of the mention about a possible no-deal Brexit.
From a technical perspective, the rejection for cable at key levels around 1.3453-00 has been massive but price is still somewhat supported around 1.3000 and closer towards 1.3100. For now, the 50.0 retracement level @ 1.3168 is also at play.
So, what's next for the pound?
Quite frankly, it may mean cable could range around 1.3000 to 1.3500 in the bigger picture. The movements in between though will largely be dictated by Brexit headlines and some technical movement - focus will go back to near-term charts.
As mentioned above, there is no reason to get overly pessimistic for now since trade negotiations haven't even begun. But Johnson's gambit does put us one step closer to a no-deal Brexit - along with the highly improbable negotiating time frame.
I would still be more willing to consider getting in on a dip around 1.3100-50 and also use the key hourly moving averages (1.3221 for the 200-hour MA in this case) as a level to define and limit risk for higher entries.
But any topside run will now have to be readjusted as I reckon 1.3400 to 1.3500 may be the limit (even the latter is pushing it) as Brexit returns to the fore.
