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.