It’s been a very interesting month since the EU Referendum took place on the 23rd of June. This was a huge moment in history with everyone (or nearly everyone) of voting age deciding if they wanted to stay or leave the EU. Leave won by 52% to 48% on a turnout of 30 million , or 72% of the population. Since then we have seen David Cameron step down and Theresa May replace him as Prime Minister. Withdrawal from the EU involves invoking an agreement called Article 50 of the Lisbon Treaty which gives both sides two years to agree the terms of the split.
Let’s take a look at our prediction and see what happened to the Sterling following the Brexit result.
As the results were coming out in the early hours of Friday 24th June, the GBP/USD saw a spike in price as the votes seemed to favour the remain camp. The chart below shows price moving to the predicted level at 1.5022, which was in line with our predicted range of 1.500 – 1.5200. However, as it became clear in the early hours of the 24th that the exit vote was ahead, the price of the GBP/USD fell sharply and almost fell to our lower target of 1.3000.
In the days following the referendum result, price dropped to within our target range, breaking the upper limit at 1.3000 and falling as low as 1.2790. Our Sterling prediction was correct, but the big question now is where the Pound is headed over the coming weeks and months.
After Sterling reached its lowest level since 1985, we can immediately see a tight consolidation period between 1.2880 and 1.3506. This is likely to continue due to a high level of uncertainty about the nature of the exit from the EU, for both domestic companies and foreign based firms. Do businesses keep a presence in the UK or move to a country within the EU that benefits from Passporting? From a business perspective nothing can really be decided until negations have been confirmed.
Over the next few months we are likely to see one of two outcomes for the Pound’s next move. A breakout to the lower side of this defined consolidation period at 1.2880 is a great short opportunity, and our prediction in this particular scenario would see price fall to 1.2179. A long set-up would see a retracement to 1.4157. Both outcomes of a breakout are possible but the time this could take will vary. The consolidation period could last until the UK and EU agree the terms of exit, or until any major developments occur. To find out why we chose these two levels, please click here.