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What is Brexit?

Brexit is the process of Britain’s leave from the European Union.

It’s lasting now for about 3.5 years.

There are two threads:

  1. Prime Minister Boris Johnson is trying to push the Deal through the European Council President Donald Tusk with suggestions for Northern Ireland border. He wants Northern Ireland to stay as a member of the United Kingdom customs union and, at the same time, a member of the European Union. The British Parliament strictly disagrees with this solution and blocks Johnson’s last attempt 21 October.
  2. The Parliament is preparing a new draft of the agreement on Brexit. Most likely, it will be delayed again, and 31 October Parliament will announce another prolongation. The EU Parliament signs off on the three-month extension up until 31 January 2020.

How does it affect Forex?

Because of Brexit uncertainty, the volatility of the GBP remains at a high peak since the referendum of 2016.

If Prime Minister Johnson succeeds in reaching the convention, GBP/USD could gap above 1.30 and even 1.32.

If not, GBP will return below to 1.26.

For now, on the senior timeframes you can see:

  1. Monthly—flatting correction within the long-term downtrend.
  2. Weekly and daily—mid-term uptrend.
  3. All the breakouts of support and resistance levels appear on the H1–H4 timeframes.

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UK Interest Rates between ICE and FIRE

Brexit is looming.

The mood is highly volatile and everyone is watching what will happen soon.

But where UK interest rates stand among all this chaos?

There is Brexit, the global growth is slagging, and all major central banks are cutting rates.

So what will the bank of England do?

And where the Pound will settle in the end?

Where does the BOE stand right now? What’s his next move?

Of course, it isn’t funny when you’re a central banker and your country is going through something exceptional like Brexit, which makes it swing back and forth between two extremes.

Also, you can’t ignore all economic forecasts or even mock it.

So the Bank of England has committed to its exception that it will raise rates over the next three years.

But, there are whispers and clear signs from within the Monetary Policy Committee that some of its members are thinking about changing their views, given the sluggish global growth and the rest of the major central banks are titling toward cutting rates.

The means that the BOE is finally awake and it will try catching up with what the money markets have long priced in.

A quarter point rate cut probably sometime in the middle of next year.

Traders also are well aware that even if a miracle happened with Prime Minister Boris Johnson and he magically delivers a Brexit deal before the deadline on 31 October, any subsequent market move would struggle amid Donald Trump’s trade wars against everyone.

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Change of path from raising to cutting

In October, the International Monetary Fund trimmed its global growth estimates again to just 3% this year, changing the views of the BOE’s governor and others.

Economic data from bad to worse

Recent UK economic data show sign of weakening as:

  • The sudden drop in the labor market and employment figures by 56000 in the three months to the end of August.
  • The decline in average weekly earnings (including bonuses) from 4% to 3.8% in August, a key criteria at the bank for rate hikes.
  • The September survey of purchasing managers dropped below the 50 growth line.
  • Even inflation, the consumer prices dropped to 1.7% in September, below the bank’s 2% target.
  • Finally growth is unlikly to rise much higher than 1% in the near future.

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There is the Sterling going?

Wherever the Pound settles after the Brexit journey, that will be our guide to see where monetary policy is headed.

For example, a sustained rally would cap inflation and reduce the chances of a rate hike.

But this result is still unknown and uncertain, so the BOE can’t rely on this theory only, which will encourage the bank to sit and wait to assess the impact on wage inflation.

In the end, global economic growth is slowing and trade wars are at their peak.

Even if the US and China reached a partial deal, it wouldn’t repair all the ongoing damage to the manufacturing sector.

The same thing goes for a Brexit deal, it wouldn’t recover much of the lost output and investment.

The Federal Reserve is on a rate-cutting cycle and the ECB has left the serious decisions to its incoming president Christine Lagarde with a full range of stimulus options.

So the BOE will find that easing trend hard to resist even in with the brightest Brexit deal.

So what will the BOE do facing all this volatility?!

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