British Pound After Theresa May

05/24/2019 2:16 pm EST

Focus: FOREX

Ashraf Laidi

Founder, Intermarket Strategy Ltd. and www.ashraflaidi.com

With British Prime Minister May resigning, there are a couple of scenarios for the pound, writes Ashraf Laidi.

Now that Prime Minister Theresa May has announced she is stepping down from the Conservative Party leadership as of June 7, the ongoing political chaos will shift temporarily from striking a deal on the Brexit withdrawal agreement to reaching a winner in the Party leadership race. We know Foreign Minister Boris Johnson is considered as the favorite to become Prime Minister with 9:4 odds. We also know too well he's a staunch Brexit supporter. So what about this chart below?

After Theresa May - Cable H And S May 24 2019 (Chart 1)

If the inverted head-&-shoulders formation above is correct, then it suggests that we will no longer see a GBPUSD close below 1.2600. Perhaps an intraweek drop to 1.2580 or 1.2550 but not a weekly close below 1.2600. I continue to expect 1.3700 or 1.3800 before the end of Q3. This includes a weekly move of +400 pips in the Sterling to occur within the next three weeks. We were unfortunate in the Premium Insights to have been stopped out at 1.2630 in our cable short. Good news that at quite a few clients (I call them clients not subscribers because those have been with us for some time) told me they moved or removed their stops. More importantly, keeping clear head on the price, chart and fundamental considerations at hand is what counts to survive.

For the record: We're not basing our bullish GBPUSD call solely on the inverted H&S formation. We've mentioned a few times in the Premium videos other factors such as U.S. dollar considerations, macro dynamics and spreads.

Fundamentally, a rally in cable could occur via several routes: Due to Boris Johnson's staunch pro-Brexit stance and his relative indifference to a no-deal outcome, any emerging news negatively affecting his candidacy will be GBP-positive. An alternative Johnson scenario (GBP-positive) would be for him to secure a Brexit deal. Any path towards that would be a positive shock to the pound.  There are various other options, not all of which are related to the leadership race. But the three major outcomes remain well on the table: Brexit with a deal, Brexit with no deal or a new general election and possibly a fourth outcome, a second referendum. And keep an eye on Sunday's EU elections results. A strong showing for the Liberal Democrats or a surprise +20% would be favorable for sterling bulls.
Stay tuned.

Ashraf Laidi recently talked about the Dollar, gold and the Chinese yuan Triangularity at TradersEXPO New York.

You can see Ashraf’s daily analysis at www.AshrafLaidi.com and sign up for the Premium Insights.

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