1.15 has been a key resistance point for over 18 months and Pound to Euro rate is currently testing 1.15 again. Having had a chat with fellow traders this morning it seems I may be alone with my current view. Many of the guys here believe 1.15 will be breached and Sterling will continue to climb, I am not so convinced.
Is there justification for the Pound’s rise in value?
Ask yourself what is the justification behind Sterling’s strength? It is difficult, the current reasoning is due to a potential extension to Article 50 and the apparent drop in probability of a no deal Brexit. Does this really justify the Pound making significant gains against the majority of major currencies?
Morgan Stanley believes there is now less than a 5% chance of a no deal Brexit, but if we look at the current situation is that really the case? By rumours spreading that a no deal is now less likely it puts Theresa May in a terrible position to negotiate. A no deal Brexit scenario is practically the only ammunition she has. Brussels knows this.
Theresa May tried to push through her Brexit deal in December and it was delayed due to a lack of confidence in the deal going through Parliament. Her intention was to go back to Brussels to renegotiate better terms. European Commission President, Jean Claude Junker has stated there will be no changes to the current deal and Mrs May was stonewalled.
If May is now in a weaker position why would Junker now make concessions? It does seem that the majority of parliament are ‘remainers’ so the odds are stacked against May anyway.
The extension seems pointless unless Junker changes his tune or we are preparing for a no deal.
It is a farce. I would be surprised to see the Pound to Euro rate breach 1.16. If I was buying Euros I would be looking to take advantage of current levels. I would be wary of being overly optimistic, every time GBP/EUR has moved into the 1.15s in the last 18 months it has quickly retracted.
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