The Brexit jitters were revived on Tuesday evening with sterling stumbling into steep losses after British Prime Minister Theresa May signed a letter notifying the EU of Britain’s plan to depart from the European Union. With the game changing Brexit letter due to be delivered to Brussels on Wednesday afternoon marking a critical turning point and triggering one of the most intricate set of negotiations Britain and the EU have ever been presented, sterling could be instore for a rocky rollercoaster ride. There is already an air of unease over potential complications in the negotiations with the EU’s demand for a £50 billion Brexit bill acting as the first test which may create serious headwinds.
Sentiment remains firmly bearish towards the pound moving forward and the potential resurgence of hard Brexit fears could ensure price weakness becomes a recurrent theme. The fact that sterling found itself on the back foot on Wednesday morning as Article 50 is about to be officially triggered continues to highlight how the Brexit risk has not been fully priced in with further downside shocks expected. While it is certain that today will go down in history as the day the UK decided to start an irreversible Brexit process that will terminate its 44-year-old membership with the EU, the outcome remains an uncertainty that may leave investors on edge.
From a technical standpoint, the GBP/USD has found itself gripped by the Brexit woes with sellers exploiting the anxiety to install repeated rounds of selling. The technical breakdown below 1.2400 could encourage a further decline lower towards the next relevant level at 1.2300.
Currency spotlight – USD/JPY
Uncertainty from the Brexit woes coupled with the rising Trump jitters could spark a wave of risk aversion which may ultimately bolster the Japanese Yen in the short to medium term as investors seek safe-haven safety. From a technical standpoint, the USD/JPY fulfills the prerequisites of a bearish trend as there have been consistently lower lows and lower highs on the daily timeframe. Previous support around 111.600 could transform into a dynamic resistance that encourages a further decline back towards 110.00 and potentially lower.
Commodity spotlight – Gold
Uncertainty is still a key market theme this month and such has supported gold with the yellow metal hovering around $1250 as of writing. A vulnerable dollar coupled with concerns over the global reflation trade has boosted gold’s allure and this has encouraged bulls to install repeated rounds of buying at any given opportunity. With the ongoing Brexit developments likely to compound to the uncertainty, gold may challenge $1260. From a technical standpoint, the metal remains bullish on the daily charts and a break above $1260 could open a path higher towards $1275.
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