GBPUSD BrExit Long term analysis - Route to Parity

Negotiations between the UK and EU are currently not going according to the timetable. What does it mean to the general market? In this exclusive GBPUSD BrExit Long term analysis, we will look into the past and future impact of the Brexit on GBP as well as EUR.

29 August, AtoZForex – In our BrExit analysis, we will review where we are after a year following the UK Referendum to leave the European Community. Time stops for no one. UK government is adamant to see through the wishes of the majority of the UK citizens. What has happened post referendum and what it could possibly mean for the UK and EU going forward? The impact on GBP and possibility of parity?

BrExit summary of key events

The following is a BrExit summary of key events, prior to looking into the GBPUSD BrExit Long term analysis:
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  • 22 January 2013 - UK PM David Cameron tells potential voters if the Conservatives win the next election, UK/EU ties to be revisited.
  • 7 May 2015 - The Conservative Party wins the general election and extending overall majority. Polls got it drastically wrong.
  • 27 May 2015 - In Queens speech, the European Union Referendum Bill is announced,  opens the door for a referendum to take place.
  • 1 Sept 2015 - EU referendum work commences under a new group headed by British official Jonathan Fuall and reports to EC President Jean-Claude Juncker.

2016 Events

  • 18/19 February 2016 - UK PM David Cameron manages to get the other 27 member states to sign up for a package of reforms at EU Summit.
  • 20 February 2016 - Referendum date is announced.
  • Mar/Apr 2016 - For the referendum to take place secondary legislation has to be laid before Parliament. The Electoral Commission is responsible to designate the Leave and Remain campaigns. Access to the public purse is to be made with a £7m spend limit and TV broadcasts.
  • 5 May 2016 - Elections will also take place for English local authorities and for London's mayor.  Scotland, Wales and Northern Ireland devolved parliaments to undergo elections also.
  • 16 June 2016 - A Sad Day for all in UK, after Labour MP Jo Cox is murdered. Her attacker was reported to have shouted "put Britain first" at least twice. A 52-year-old man, named locally as Tommy Mair, was arrested.
  • 23 June 2016 - Referendum Day with a simple question, "Should the United Kingdom remain a member of the European Union or leave the European Union?"
  • 23 June 2016 - UK decides to leave the European Union by 52% to 48% vote.
  • 24 June 2016 - David Cameron resigns as Prime Minister.
  • 11 July 2016 - Theresa May becomes the new leader of the Conservative Party.
  • 5 September 2016 - UK Parliament debates the possibility of a 2nd Referendum arising from a petition signed by over 4million people. The result is no second referendum and wishes of the majority must be respected.
  • 4 October 2016 -  Prime Minister Theresa May announces she will trigger Article 50 by the end of March 2017.

Mechanics of Triggering Article 50

UK PM Theresa May also announced at the Conservative conference the introduction of the "Great Repeal Act" to repeal the European Communities Act 1972 (“the 1972 Act”), which took the UK into the European Union ( formerly European Economic Community. This meant an overall agreement from all the home nations by end of March 2017.

UK Government's view was that this Act gave it the right to go ahead and therefore did not require consent from the UK Parliament. There was a court case R (Gina Miller and Deir Tozetti Dos Santos) v Secretary of State for Exiting the European Union. The intention of this court case was not to overturn the EU Referendum result.

Basic viewpoint of the claimants was that UK Government cannot trigger Article 50 without the authorization of UK Parliament through an Act of Parliament. Since the UK is a parliamentary democracy and EU Referendum was advisory and not legally binding. UK Parliament has to decide on how Article 50 is triggered.

  • 24 Jan 2017 -  UK Government loses the court case. The UK government has to put the triggering of the Article 50 to the UK Parliament. The UK Supreme Court also ruled that once the Article 50 is triggered, it cannot be reversed.
  • 29 March 2017 - UK PM Theresa May formally informs EU President Tusk, triggering Article 50.

Official BrExit Date in 2019

Article 50 was triggered, UK will leave the EU on 29 March 2019. The UK Government has commenced a two-year process to complete the negotiations on which UK departs the EU.

Snap UK 2017 General Elections

  • 18 April 2017 - PM Theresa May announces a snap general elections. Date set for 8 June 2017.
  • 8 June 2017  - UK 2017 general elections polling day. 
  • 9 June 2017 - Conservatives have the great number of seats but lose the majority. It resulted in a hung Parliament.
  • 26 June 2017 - Conservatives - DUP agreement signed, ensures the support Theresa May needs to continue.

BrExit Socio-Politics

Well, it is interesting that the UK Labour Party last week has sided firmly for a "Soft BreXit". Clearly opting for an interim four-year transition solution in which UK would continue to abide by all the laws of  EU. Meaning no real change in the status quo. Although, immigration was one of the key issues during the referendum campaign since the UK decision to leave the EU has resulted in the drop in migration. This drop in migration may primarily be due to the value of the GBP and many economic migrants not seeing any benefit from working for a weakened GBP.

BrExit negotiations between the UK and EU resumed yesterday, markets will be watching and scrutinise every piece of information released. A mixed or no clear message will be GBP negative.

GBPUSD BrExit Long term analysis

The following charts clearly show some key dates and negative impact on the value of the GBP after the UK Referendum result to leave the EU. Observing price action the charts show the drop in the value of GBP from 1.5015 on 24 June 2016 to a low of 1.1986 on 16 January 2017, a drop of 3029pips. 

Chart 1 - below shows the overall picture with some key dates. After the UK Referendum result, GBP has been trading initially from 1.35326 and 1.27940 levels between the end of June 2016 and beginning on October 2016. GBP broke through this interim range to the down side to form an overall trading range between 1.3530 and 1.2000 levels.

BrExit Update - Tick Tock One Year Gone Chart 1 GBPUSD Daily timeframe 

 Chart 2 - Below shows price respected the Fib extension level of 161.8%. Since Mid January 2017 GBP has been bullish.  

BrExit Update - Tick Tock One Year Gone Chart 2 - GBPUSD Daily timeframe 

From the chart below (Chart 3), we can see that the Fib levels of the current trading range between 1.35326 and 1.19858 levels. 

BrExit Update - Tick Tock One Year Gone Chart 3 - GBPUSD Daily timeframe 

 Below (Chart 4) shows Fib levels from the 24 June 2016 to low of 16 Jan 2017.  

BrExit Update - Tick Tock One Year Gone Chart 4 - GBPUSD Daily timeframe 

GBPUSD BrExit Long term analysis - What Next for GBP?

Long term - GBP has to break through the current trading range of 1.3532 and 1.19858 for a clear direction.

Bullish outlook - Above 1.35326 for the bulls to be charge and expect price from a technical perspective test initially the 1.3850-60 levels, then the 1.4200 level and finally the 1.4695-1.4700 level.

Bearish outlook - Below 1.19858 for the bears to take charge and expect price move towards initially the 1.1500 level and finally towards parity.

Current view

Bullish outlook - if price closes the day above 1.2925-30, price would test the 1.3000 level. If price breaks through the 1.3000 level, expect a test of the  1.3190 level near to the 1.3200 key round number. A price move towards the 1.3225-30 level cannot be ruled out.

Bearish outlook - if price closes the day below the 1.2790 level, price would test the 1.2675 level. If price breaks through the 1.1.2675 level, expect a test of the  1.2500 level . A break of this level on the downside would see price test the 1.2245-50 support level.

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Please use correct risk and money management in line with your account size and draw down plan. These are not recommendations; you must carry out your own due diligence. 

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