Brexit and the British Political System

BREXIT and Its Background

Britain officially joined the European Union on 1 January 1973. BREXIT is a term that refers to the British exit from the European Union. It was a complicated and long-awaited event that started with a referendum in June 2016. The then Prime Minister David Cameron held a referendum asking the British nationals to stay in or leave the European Union. The referendum resulted in 52 percent voters voting in favor of leaving the European Union and 48 Percent voting in favor to remain in the European Union.

After the referendum, the official process of leaving the union started in 2017 which completed on 31 December 2019. UK and EU have now entered into a transition period until the end of 2020. While the UK and EU are negotiating the current rules on travel, trade and business will continue to apply during the transition period, the new rules will come into effect from 1 January 2021.

Brexit and the British Political System

BREXIT was a complicated issue that resulted in a turmoil in the British Political system. Prime Minister David Cameron, a pro-EU leader had promised in his election campaigns to hold a referendum asking the British citizen whether to stay or leave the European Union. Following the outcome of the referendum, he resigned from his post.

In the aftermath of Cameron’s resignation, Theresa May took on the premiership. She lobbied for a BREXIT deal but failed to convince the parliament which leads her to resign after being in the office for nearly 3 years.

The Conservative party appointed Boris Johnson, he won the parliament vote to become the prime minister. Things were not smooth for Boris Johnson either, his party members refused to vote on his BREXIT deal. Finding no way out, Boris Johnson called for a fresh election and won a bigger majority that paved the way for British Withdrawal from the European Union on 31 December 2019.

Now that the UK has formally left the EU, the transition period has begun which is set to complete until 31 December 2020. During this transition period, the UK and EU will finalize their trade agreements.

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BREXIT and British Economy

The effects of the BREXIT on the UK’s economy have been a real cause of concern. Many analysts believe that the UK’s per capita income will drop due to the BREXIT. A study shows that after the referendum result, inflation had gone up to 1.7 percent in 2017. Another study in 2018 shows the economic cost of the Brexit was 2 percent of the total GDP. According to the analysis by Stanford University, the businesses in the UK reduced their investment by almost 6 percent due to BREXIT uncertainty. A number of other studies also show the effect of BREXIT on the UK’s international trade which is reducing Since June 2016.

BREXIT and the British Pound

The last 4 years have been a rough time for the British Pound. Just before the referendum in June 2016, the Pound was trading near $1.46. However, in the aftermath of the referendum, it sharply declined to 1.30. Throughout the year 2016, the pound continued to decline and only found the support near 1.20.

Later in the first half of 2017, the talks about delaying BREXIT and a second referendum stabilized the pound for some time. In 2018 pound once again resumed its uptrend towards 1.40. However, the uptrend did not last long mainly due to the political situation in the country and talks about a hard Brexit.

In 2019 Pound started to fall again and remained on the lower side for almost the entire year. As with the completion of the UK’s exit from the European Union on 31 December 2019, the pound is trading between 1.22-1.31.

The recent outbreak of Coronavirus that is affecting the global economies has also pushed down the value of Pound further to 1.2250. Analysts believe that a longer outbreak of coronavirus will deeply effect the UK’s economy.

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Pound Trading Strategy

Last Closing: 122.54
Resistance 1: 123.90 – Resistance 2: 125.10 – Resistance 3 – 12.30
Support 1: 121.80 – Support 2: 120.10 – Support 3: 1.920

The pound is likely to remain on the lower side and may maintain a range of 1.21-1.2500 for some time. The pressure due to Coronavirus may also continue for a few more weeks. However, 1.20 will serve as major support and will prevent further drop below 1.20

The Short Term Trading Strategy

On short term bases, traders may opt to buy near 1.2175 with a target of 1.2375 while keeping the stop loss just below 1.2050

Alternatively selling at 1.2450 will be suitable with a target of 1.2250 and stop-loss at 1.2550

Note: A weekly closing above 1.2570 suggests a trend reversal, in more favorable conditions a weekly closing above 1.2570 may push the value above to 1.2900.

The long Term Trading Strategy

The pound’s long term trading strategy remains a risky business as the UK and EU have started the transition period. If the UK manages to get a favorable trade agreement the Pound may recover back to 1.40 sooner than later. However, as the negotiations are underway traders will experience aggressive price movement.

An ideal long term buy will be near 1.2000. It would be important to keep a stop loss below 1.1820. Long term traders must look for a weekly closing above 1.25000 which may ensure an uptrend towards 1.3000. It wud be wise to also keep an eye on the UK and EU trade deals which will determine the course of the UK’s economy.

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