GBPUSD rebounds to test 1.3000

So, the much anticipated Brexit vote has been and gone and as we all suspected, the

government’s bill was duly rejected by the House of Commons. Whilst that outcome wasn’t

exactly a surprise, the huge number of votes against the motion surely was.

Subsequent to all this the pound has actually strengthened and that’s largely due to the

markets’ belief that the potential for a second referendum has now increased, despite the

government’s insistence that Article 50 will not be extended. Perhaps the government

insisting on anything right now carries little weight with anyone and certainly not it would

seem with the markets.

Indeed, what appears to be driving this uptick in the pound looks centred on mounting

speculation that there will indeed be a second referendum, or at the very least, no hard

Brexit. This has been compounded by reports in the media yesterday, stating that the

government is due to study closely the viability of a second plebiscite.

Anyway, I said on Monday that I thought, from a technical perspective the GBPUSD might

bounce back up to have a look at 1.30 again and indeed that has been the case with 1.3001

being printed yesterday evening. I also said that maybe this pair might reach as high 1.31

and the reason for that I should note is because that’s roughly where the 200 daily moving

average was then, but in fact as of this morning that’s a bit lower now, at 1.3089.

So that moving average is still falling quite sharply and could cap the topside of this run up

and I repeat what I have said before regarding my longer term prognosis for the currency,

which is unchanged and assumes no significant fresh news especially before or after the

next political deadline- May’s plan B which is due on Monday.

Meanwhile, the GBPEUR is also getting a lift as it pushes up to 1.14. This move could extend

a little more too, perhaps even further in points terms than the GBPUSD from here,

depending on how the EUR fares of course. The EURUSD is now camped back inside that

1.13-1.15 range again and under a degree of downside pressure with fresh questions being

raised over the Eurozone recovery in general and upcoming ECB policy in particular.

And now for something slightly different. Whilst carrying out various research this week I

happened to stumble across a long term chart of Marks and Spencer’s share price and

immediately I saw what I thought was a rather uncanny resemblance to something I have

seen many times before. So I thought it might be quite interesting to share that with you


The chart above shows the share price of Marks and Spencer (White line) and the price of

the GBPUSD (Green line) taken over a 25year period and its quite amazing, whilst not

entirely exact, just how closely correlated these two are to each other, albeit on a broad

basis, when looking at the price action of both over the past two and half decades.

Quite honestly I have no explanation as to why these two have tracked each other in this

way, but I thought it very interesting and diverting, to share it all the same. This is especially

the case when one considers the more recent, almost entirely inverse correlation now in

place between the FTSE and the GBPUSD. Perhaps one might even think to trade

M&S/GBPUSD as a proxy for the other? Well, I am not suggesting that, but something worth noting all the same.

Anyway make of that what you will. Stateside the shutdown show goes on, but without

dampening the enthusiasm for US stocks as the December losses continue to unwind. How

far this will run is hard to predict right now, but certainly there’s fresh appetite for risk over

the pond at the start of the New Year which is more than can be said for what’s going on

this side of the water.

Naturally, and with that in mind, if we are headed for a second referendum, then the pound

has got further short term upside as several market participants seem to assume the

outcome of that will overturn the result of the first one. However, I would be extremely

cautious about making such an assumption because it is very much in the balance.

A second referendum, far from being conclusive, could be even more divisive than the first

and in all likelihood won’t offer any kind of resolution to the problem- a problem largely

caused by the abject failure of UK/EU politicians to reach a workable consensus and enact

the will of the people.