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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Time for a sterling complacency check

Article By: ,  Financial Analyst
April 9, 2019 9:41 AM

Complacency remains the sterling trader's biggest enemy

The talk of the morning was that Germany’s Chancellor Merkel might be willing to set a 5-year limit on the Northern Ireland backstop. After the inevitable denial, the pound unceremoniously dumped a near 70-pip gain. This again illustrates the huge divide between the market’s appetite for promising news versus the reality that Britain still hasn’t agreed a deal and could crash out in three days. The pound hasn’t traded below $1.29 since February.

This sort of optimism has a recent precedent. Bullish exuberance also culminated around midnight after 23rd June 2016’s referendum, with sterling peaking at $1.50. GBP/USD has printed up to 6% higher since 1st January, according to Refinitiv data. It peaked by a similar amount weeks before the referendum. Then as now, options markets were getting bored. Sterling’s net short was far bigger though.

Best, case, assume an extension is granted. A year-end option’s a higher probability amid Tuesday reports that France’s Macron wants a delay no longer than end-2019, whilst the EU opposes an extension to 30th June, Theresa May’s preferred length. A 9-month pause would almost certainly see more multi-dimensional wrangling. Meanwhile, Brexit’s cap on growth and investment would continue and the BoE would stay on hold. As we’ve seen, that doesn’t preclude resilient economic readings. These could lift sterling to the top of its dominant $1.28-$1.34 one-year range, but a sustainable upside break is unlikely.

The bottom line is that boring ranges have been profitable ranges this year and sturdy stops enable survival for far longer than optimism alone.

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