Cable rebounds on PM May’s Speech Despite What Looks Like a Hard Brexit
|Sterling bounced back yesterday after reaching a most recent low on Monday at 1.19858. The US dollar lost ground against most major currencies but PM May’s speech accentuated the rally for the pound, which went up 2.84% against the dollar, reaching a day high of 1.23970.
Mrs May did not really give any new information as to exactly what Brexit entailed, but she did leave clear however the principles of immigration control and legislation going back to the UK. She also mentioned that the UK would be leaving the EU single market and there would be no deal that might include some EU membership benefits and not others; the break would be total.
This sounded very much like a hard Brexit as it would seem that the UK’s position on certain policies is unnegotiable. She also mentioned that the final deal would be put to parliament to be voted on before it is accepted.
Macro fundamentals may not have changed yet but the UK economy is forecast to grow at around 2% for 2017 compared to 1.7% for the US. We may see interest rates creep back up in the UK as the Fed tightens in the US. A lot will depend on economic data; this Friday at 09:30 am we will have Retail Sales released for the UK. The general consensus is for an increase of 7.3%, compared to last month’s increase of 5.9%.
If you think the Pound will continue to rise in price after Retail Sales data then all you need to do is buy GBP/USD with Deal Cancellation protection, This feature allows you to place a trade with a maximum stop loss, which if hit during the first hour, will only cost you the premium paid for Deal Cancellation protection.
Deal Cancellation protection gives you the option to close a trade, during 1 hour, losing only the premium paid to buy Deal cancellation protection, while allowing you to profit from any positive price movement. The screenshot below shows that to buy £28,000 with a stop loss of €327 would cost €23.00 in Deal Cancellation protection.
If the market increases from 1.24034 then you would be able to close the trade for a profit less the cost of the Deal Cancellation premium. Let’s say the market rises to 1.25034 then the profit would be equal to €261.60 - €23.00 = €238.60, while your maximum risk, for 1 hour, would be €23.00.
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