With Article 50 being triggered by the UK government in March the prospect of volatility in sterling and the FTSE 100 has increased. Take advantage of the opportunities with our superfast trading platform.

  • Go long or short on key currency pairs GBP/USD and EUR/GBP
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Find out what Brexit means for the markets

Although the road leading to triggering Article 50 has been full of twist and turns, one thing has remained a constant: the destination. The process of starting Brexit negotiations and triggering Article 50 would happen by the end of March. The Prime Minster, being maybe the only constant, is indeed giving the people what they want and has successfully navigated us to this very point.

The outcome is not a case of if but when Article 50 will be triggered. Much of the markets’ volatility leading up to this point, especially in the GBP, has been down to traders speculating that Brexit may be delayed or may not happen at all. This is now all wishful thinking. What the markets do between now and when Article 50 is triggered is to discount the ‘known’ facts and prepare for the ‘unknown’ of what may happen during Brexit negotiations.

There are a few other factors that will have to be considered by traders over the coming months:

  1. The March US Fed hike and the strong possibility of a June hike
  2. The fact that the EU said trade negotiations could take 15 years
  3. The ‘special relationship’ with the US and our ability to do a deal with the world’s biggest market

Market outlook

Currently, and once Article 50 is triggered, there will be attention on the pound and the euro. Having seen GBP/USD testing below 1.20 there is certainly room on the downside for traders to push the pound lower, with rate hikes in the US making the US dollar ever more attractive in times of uncertainty. I would say that any push lower would be a ‘squeeze’ for the inevitable bounce in the pound. 1.15 would be an absolute low in my opinion.

My rationale for this is that some degree of uncertainty has been removed. We still do not know the outcome of Brexit, but we have a plan and are sticking to it. This will invariably give the GBP bulls room to buy lows and to find value. After all, in global terms, where else can you find a good currency? The euro is certainly likely to be a target for speculators betting on EU ‘contagion’ and, while the US on paper is economically strong, its leadership still leaves a lot to be desired.

Steve Ruffley

Chief Market Strategist, InterTrader

The content of this article is the personal opinion of the author and not InterTrader. You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.

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