British Pound Touches 2016 Low Against Dollar

The Circus
If anyone wants to see a 21st century version of political circus they do not need to look far, the British law makers are doing a pretty good job at it today. The country is facing its third election in under four years approximately. The new Prime Minister, Boris Johnson is willing to make the same mistake as the previous one: a snap election vote. This could take place on Oct. 14 provided that if Boris faces a defeat in Parliament today.

The EU’s Rich Message
Since Boris took the position of Prime Minister, he has openly threated the European leaders that he is willing to leave the EU without any deal. The only option for them is to bend to his will. The EU has been rich its message, the deal is non-negotiable and Boris needs to understand this clearly. However, the country’s wisdom less leader doesn’t care about the vast economic harm of no-deal Brexit. The UK’s economic situation is dire. The UK’s manufacturing PMI data confirmed yesterday that the country is already teetering with recession as the reading came below 50, a level which differentiate contraction and expansion. The actual reading was 47.4 against the forecast of 48. The housing market is only getting worse, a record 53.5% of homeowners lived with empty rooms because of the lack of the rental demand.

Lawmakers Tearing the Country Apart
Nonetheless, Boris is determined to deliver Brexit at any cost. He is of the mind frame that threatening the EU leaders would work in his favour and they are likely to bend before the deadline. He believes that the economic impact of no deal Brexit isn’t only going to hurt the UK’s economy but also the EU as well.

Perhaps there is some reality to this. However, the reality is that for the past three years, the lawmakers are only tearing the country with their reckless policies. To Britain’s luck until this day they do not have any plan how to deal with Brexit. This uncertainty is of grave concern for businesses and no one in the country is sure which way the actual pendulum is going to swing. Voters are already fed-up with the Brexit word, and its once-close European allies, are completely alienated.

Boris Playing All The Tricks
Boris Johnson isn’t delivering people’s choice, he is playing all the tricks in the book. In the upcoming election what he is going to offer voters is the choice between Jermey Corbyn, the opposition leader of labour party and no-deal Brexit. Business owners are equally afraid of the opposition leader whose policies aren’t that business friendly. So, for traders, this is a volatile situation.

The Next 72 Hours
As a result of this, the British Pound has fallen to its Brexit referendum low. It broke its level of 1.20 against the dollar for the first time since Brexit referendum. The next 72 hours are immensely important for the currency as it will shape the future of British politics and the country. Of course, voters may get their chance to vote on that, but the choice on which they may be voting on would not be their choice.

Expect More Sell off, But Be Cautious
Overall, I expect sterling to remain vastly volatile, the currency is over sold as per the RSI reading on a daily time frame, but it is still far from its extreme reading. This leads me to believe that there may be more room for the downside. Having said this, traders should not be greedy when taking a short position because the current move is already way over extended and this means a reversal trade is likely to come back with vengeance.

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