Brexit
The EUR to GBP exchange rate tries a bullish breakout ahead of tomorrow’s Bank of England (BOE) Bailey’s speech. The Governor is expected to participate in an online panel discussion at the annual conference of the Single Resolution Board.
Just like it happened in the previous two times Bailey spoke, the fear is that he will refer to negative rates again. Despite the fact that, in the meantime, Bailey disregarded the introduction of negative rates anytime soon, it could just be that the bank prepares the market for such a possibility, should a no-deal Brexit come true.
The EUR to GBP exchange rate depends a lot on what happens to the monetary policy in both the United Kingdom and the Eurozone. The market sees that the risk of a no-deal Brexit is bullish for the EURGBP cross, while a deal is bearish. However, this interpretation considers only one side of the story – the GBP and BOE.
If we are to look at what the ECB said lately, then the central bank should ease sooner rather than later. However, the trick here is to trade the EURGBP based on the different timelines for the two events.
More precisely, the ECB is likely to ease only in December. However, the more we head into December, the more clarity the markets will have about a deal or no-deal outcome on the Brexit front.
Today’s breakout reflects the tight congestion area the EURGBP traded recently. It looks like the price broke higher out of a contracting triangle and now prepares to break the lower highs series.
Bulls may want to trade this breakout gradually. More precisely, going long at market makes sense with an invalidation point at the last higher low swing in the triangular pattern.
Also, a conservative approach is to wait for the EURGBP cross to reach the first target, and then to move the stop-loss order to break-even and book half of the profits, while keeping the rest for the final target.
