Sterling Performance Mrs. May

Sterling has been consolidating between €0.82 and €0.94 for over 2 years following a greater than -30% decline in the currency versus EUR in 2016. Today, the UK parliament votes on Teresa May’s Brexit plan. Odds are that May will lose the vote. If she loses by a significant majority, watch for $EURGBP to break out higher from the triangle consolidation as GBP resumes its decline versus EUR. An unexpected vote in favour of May’s plan would see a sharp rally in GBP and a break lower from the 2-year consolidation. While it is not possible to predict the outcome of this afternoon’s vote, I can assign a much higher probability to the longer-term direction of $EURGBP following the break higher or lower from the pattern below.

Look what happened to GBP in 2007 and 2008 after the last long triangle consolidation versus EUR. The $EURGBP exchange rate resolved higher out of the range and GBP fell sharply versus EUR for the next two years. We may not see such an extreme move this time but I am expecting a trending move to begin in this currency pair in 2019. If I was a betting man, I would say that GBP is going to continue to fall versus EUR and we could be looking at parity or worse for our neighbour’s currency later this year.

 
 

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