Brexit Voting, Again!
 
The UK’s ‘Meaningful vote’ on Brexit takes place in Parliament on Tuesday. Prime Minister Theresa May postponed the original vote back in December as she was unable to muster up enough support for her deal. Yet one month on she’s still expected to lose as her position has deteriorated significantly while Brexit itself looks in serious doubt. This has led to a recovery in sterling over the past fortnight as the prospect of a ‘no-deal’ Brexit has faded.
 
Looking at the charts, cable has now broken above resistance around 1.2800. Bear in mind that the pair fell below 1.2450 at the beginning of the year. Of course, where sterling goes from here depends on Tuesday’s vote and Theresa May’s response. But traders have begun to price out a hard Brexit while pricing in the prospect of a continued close alignment with the EU. What would cause greater uncertainty would be a second referendum. While many investors believe this would result in the UK voting to stay in the EU, there’s also a chance that the leave vote share increases as the public express their disgust with the political classes. But this is an issue for another trading day. In a bullish scenario we could see the pair reach the 1.3150-1.3200 area in an intermediate time frame while bearish take could mean a pull-back to 1.2650 or even 1.2500.
 
The euro has made decent gains versus the dollar since the beginning of the year. This is despite a clutch of weak economic data releases from the Eurozone last week. Most of the euro-USD’s recent strength can be blamed on dollar weakness as the US Federal Reserve under Jerome Powell has suddenly undertaken a dovish pivot. The market no longer expects any rate hikes in 2019 despite the FOMC forecasting 2 less than a month ago. On top of this, there’s growing speculation that the Fed may halt its balance sheet reduction programme which was previously understood to be on autopilot at around $50 billion per month. But with the UK’s meaningful vote in prospect, the euro should benefit as long as there’s no possibility of a no-deal Brexit. On a longer timeframe EURUSD bulls will target 1.1700-1.1800 area. Support currently comes in around 1.1400/1.1350 while break below 1.1300 raises the probability of a retest of November lows around 1.1200.
  
GOLD OPTIONS
 
The most important mid and long-term chart is Gold in our view. Instability in the world economy, the lower than expected US treasury yield environment and uncertainty over the Fed’s next move all help to support gold. Last Friday saw a significant increase in COMEX call option activity, around $3 billion in notional value, which is another indication that traders are taking out some insurance in this traditional safe-haven.
  
Gold Daily Chart
 
Chart-wise, gold is forming a bullish flag pattern. Confirmation would come with a daily close above 1296. Then there’s a key area of resistance between 1305 and 1310 range remains strong. But gold is currently back in a bull trend and pullbacks have been met with heavy buying. This positive outlook could change if we saw some closes below 1280-1275 area. Otherwise, and assuming the bull flag is confirmed then gold could be on course to revisit the 2018 highs.
 
Hope you have a profitable trading week!