Brexit and weak macroeconomics provides opportunity for shorting GBP
Great Britain has recently had its share of hard times, from Brexit to coronavirus and all of the economic challenges these two problems created. The coronavirus pandemic has caused immense economic damage all over the world with national governments being forced to shut down their economies, while the U.K. was no exception. Also, the U.K. and the EU have just recently restarted their trade talks over the terms on which the U.K. will be leaving the EU. The Brexit situation has resulted in uncertainty for businesses in Great Britain that depend on cross border trade with the EU, therefore sapping economic activity and impeding the U.K. economy’s recovery from the pandemic-caused recession. The uncertainty has resulted in weakness in the GBP across the board which means significant opportunity for Forex traders to profit from market moves against GBP.
Brexit negotiations
Traders should keep a keen eye on the latest news regarding the Brexit negotiations. The fear is that the two sides will fail to come to a compromise agreement which would mean that the U.K. will leave the EU without a trade deal. This could mean chaos in many supply chains, hurting businesses in the U.K. Therefore, if any news is leaked suggesting disagreement between the two sides and an inability to compromise, this will likely result in weakness in the British pound. If Forex traders are able to stay up-to-date on the latest Brexit news there are potential gains to be made. Alternatively, if there is news leaked that the Brexit negotiations are going better than expected this could be bullish for GBP which means Forex traders can make money going long on the British pound for a short-term trade. No matter which way the Brexit negotiations go, currency traders can earn significant gains. However, it is necessary to open an account with a reputable Forex broker in order to participate in the profit taking.
Weak economic picture in U.K.
To further add to the bearish sentiment on the pound, economic data coming out of the U.K. has been particularly weak as of late. Mortgage approvals in May came in significantly lower than expected in the U.K. while public expectations for inflation was also reported lower. Also, recently released data showed that employers in the U.K. are freezing pay increases which will hamper consumer spending. In general, the economic conditions in the U.K. are looking quite sketchy and can easily result in a falling pound. On the other hand, a breakthrough in the Brexit negotiations, if significant enough, can overshadow the economic picture temporarily and turn the tide on sentiment regarding GBP.
On the other hand, no matter if you are bullish or bearish on the pound there is always opportunity to make money for Forex traders. Even if the market on GBP may be bearish in the long-term you can still make money on short-term bullish moves caused by unexpected news. In the case of a breakthrough in Brexit negotiations, the market will price in the unexpected bullish news in the short-term while ultimately capping the upside move in the pound due to the weak overall economic picture. Ultimately, Brexit, even if there is a deal, can result in plenty of problems for U.K. businesses and the British economy.
Opportunity in GBPCAD
Due to the weakness in the pound, traders may find potential opportunities in trading the pound against another currency which has a more bullish outlook. One of these currencies is arguably the Canadian dollar. Some of the recent strength in CAD can be attributed to the rise in oil prices due to the increase in global economic activity as countries begin to slowly reopen their economies. Oil is one of Canada’s main exports, which means the Canadian currency tends to strengthen with appreciation in oil prices. Since mid-April, when oil prices hit a bottom at the height of Covid-19 concerns, the price of oil has steadily increased, providing bullish pressure for CAD. Also, adding some bullish pressure for CAD, building permits came in stronger than expected in May at an increase of 20.2%.
What this means is when traded against the weakening pound, the moves can be more pronounced. This results in larger potential profit for Forex traders shorting the pound against CAD. Technically, the GBPCAD was rejected twice at an important Fibonacci level on June 11 and June 16, which resulted in a precipitous fall. The currency pair was again rejected twice after a short rebound at around the 7.10000 level. This suggests further downside moves on GBPCAD. Forex traders who have registered with a trusted broker may have an excellent opportunity in trading the British pound in the near future.
