How To Trade GBP With Meaningful Vote Just A Week Away?

How To Trade GBP With Meaningful Vote Just A Week Away?

FOREX.com  | Jan 08, 2019 19:37

A week from today we will finally have the 'meaningful vote,' when the UK parliament will decide whether to approve the Brexit deal which Prime Minister Theresa May negotiated with the European Union at the back end of last year. The deal covers the terms of Britain’s departure from the EU and the framework of future relations with the bloc.

As it stands, the UK is scheduled to leave the EU on 29th March, with or without a deal. But things could change dramatically next week, depending on the outcome of the vote. It is possible, for example, that Mrs May might resign if the parliament rejects her deal, which could pave the way for a whole host of possibilities and uncertainties. We will cross that bridge when we come to it, but the key question right now is how to handle and trade the pound in the week leading up to the vote?

As we approach next Tuesday’s eagerly-awaited vote, the pound is likely to turn even more headline-driven and volatile as some speculators try to preempt the outcome of the vote, while those who have existing positions on sterling may decide to take profit.

The potential for increased volatility is not necessarily a bad thing for scalping and other short-term term trading strategies – the GBP/USD’s chart below shows examples of several simple support-turned-resistance and resistance-turned-support trades. Such setups are likely to increase in number this week. But speculators who like to take longer-term directional views on the pound may be better off waiting for the outcome of the vote before deciding on a trade.

On the other end of scale, aggressive traders may wish to buy as close to support or sell as close to resistance if they want to be in the market in the leading up to the vote, although we don’t recommend this strategy as it can be very risky.

To take the full advantage of the pound’s short-term volatility, traders need to select the best pair to trade the GBP against. For example, if you think the pound is going to go down, then sell it against the strongest-performing currency, while if you think it will go up, then go long the pound against the weakest-performing currency.

Which pair - and when to trade?

Knowing which pair and when to trade it could make a big difference in your P&L. It is also important to be aware of the volatility of each pound cross. For example, the EUR/GBP is among the least volatile pound pairs, while the GBP/JPY and GBP/NZD are among the most volatile pairs.

If you thrive in highly volatile market environment then choosing the GBP/NZD over EUR/GBP would make sense (everything else being equal), while if trading fast-moving markets is not your forte then the EUR/GBP, for example, might be a safer option.

In any case, don’t be surprised if the pound starts to push higher, despite all the doom and gloom out there. It is likely that a lot of speculators who hold bearish bets on the pound may decide to take profit and buy back their short positions. This could help to provide upward pressure on sterling. Even so, we don’t think the pound will go up meaningfully just on the back of short-covering. The point I am making here is that if you are trading the pound, don’t take anything for granted. Traders need to be extra vigilant to the prospects of price spikes, flash crashes and other risks and take appropriate measures to minimise these risks. Good traders are, above all, good risk managers.

GBP/USD 15 min

GBP/USD (15 min)

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Original post

FOREX.com

Related Articles

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Rakesh Patil
Rakesh Patil

Thank you for sharing. Really informative.  ... (Read More)

Jan 10, 2019 12:55 GMT· Reply
Deab Man
Deab Man

well written article  ... (Read More)

Jan 08, 2019 23:42 GMT· Reply
Discussion
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (India) English (Canada) English (Australia) English (South Africa) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 中文 香港 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
NoYes
CancelYes
Saving Changes

+