Will exporters flourish?
The likelihood of a dramatic depreciation in sterling in response to a no deal Brexit has been highlighted by some as likely to fuel a boom in exporter activity which could offset some of the other economic woes the country will face. However, if credit tightens up and border issues create delays, the impact on just-in-time productions is likely to far outweigh the beneficial effects of a change in pricing for exporters.
Will a no deal Brexit happen?
The likelihood of a no-deal Brexit occur is heavily tied to whether UK parliament will approve the withdrawal agreement that PM May sets out with the EU. The main obstacle here, however, continues to be the Irish border and the legally binding agreement to maintain a border between Northern Ireland and the Republic of Ireland which is friction free. A solution here is extremely complex and as time runs out and fears rise, it might prove to be the breaking point for the UK’s Brexit deal.
Positioning & Technical Perspective
While bearish positioning has been building over recent months due to increased uncertainty linked to the ongoing Brexit negotiations, positioning is still a way off the levels seen in 2016, suggesting that there is plenty more downside in store as a larger bearish position builds. Positioning is becoming increasingly responsive to news headlines and as talk of a “no-deal” Brexit continues to build, investors’ downside exposure is growing similarly.
The long-term chart of GBPUSD paints a very bleak picture with price heading back towards the 2016 post-Brexit monthly closing low of 1.2348. This level has been strong support since the Brexit vote with the price so far failing to close beneath the level. Bulls will be looking to this level to provide support and put a higher low in place for a move higher as was seen after the meltdown in 2008. However, If price can sustain a break of that level, the focus will be on a run down to the very low at 1.1402. To the topside, first major resistance is the broken 2009 low at 1.3478 with the long-term bearish trend line from 2007 highs coming in just above the level.
According to reports leaked this week, the Government is preparing to release over 80 documents highlighting the potential implications of a “no-deal” Brexit, highlighting a wide range of areas such as aviation safety, animal breeding, and gun regulations. PM May is hoping that the weight of these documents will help persuade both Tory Brexiteers and EU leaders to back the plan agreed by government ministers at Chequers last month.
For Britain to be on course for a deal to be ratified by the departure date in March next year, an agreement with the EU will need to be established by October / November of this year. Although the majority of such as deal has already been agreed, the deadlock over the Irish border issue remains a key hurdle.