Sterling has been on a "honeymoon" with investors since Boris Johnson won a strong mandate at the December election as it paved the way for a quick Brexit at the end of January. But now, the harsh reality is catching up with the market as we all realize that the hard nut for the EU and the UK to crack was not the terms of the Withdrawal Agreement, but the shape of the eventual trade deal after the transition period. Boris Johnson has taken a hard line in claiming that he will seek a free trade deal and will accomplish this by year end.
Sterling could fall considerably as investments into the UK will prove slow as business owners wait for a trade deal before acting and on fears that the EU will do what it can to squeeze the London financial services complex.
The Bank of England is behind the curve, meanwhile, in providing the struggling UK economy with support on its operating assumption that the bounce in confidence would be enough to pull the UK economy higher. BoE rate cuts are therefore likely in the pipeline this year.
Technically, note the recent lows around 1.2940 and 1.2905 as possible triggers for a further consolidation toward the 200-day moving average - just above which we place the profit target for this Trade View.