E GBP/JPY Is Looking Super Bearish Ahead Of Brexit Trigger Date

Rumors are doing the rounds that UK Prime Minister May intends to trigger Article 50 – UK’s withdrawal from the EU as close as  possible to the EU summit scheduled on March 9-10 i.e. at least three-weeks ahead of the self-imposed March 31 deadline.  The final vote in the House of Lords is reportedly scheduled on March 7, while the budget comes out on March 8. We could see a mini June 23rd – like wave of selling in the British Pound in the run up to Brexit trigger date. 

The Japanese Yen could strengthen as well over the next couple of weeks as there are growing signs of exhaustion in the ‘Trump Trade’. US Treasury Secretary Steven Mnuchin indicated last week that it would take time for fiscal policy reform to impact the US economy, frustrating traders betting on Trump administration’s stimulus.

Moreover, tax reforms are unlikely to come through before August. Furthermore, fiscal/infrastructure spending is seen coming through in 2018. This is likely to add to traders’ frustration, but they have to bear the fruits of their labour – The frantic rally since November clearly suggests traders thought Trump has a magic wand that would push US growth rate to 4%-5% in just a matter of months. 

But now, traders are getting a reality check and that is unlikely to go down well with the markets. 

Thus, GBP/JPY could easily shed 1000 pips or so over the next few weeks. What’s interesting is that even the technicals are in favour of a sell-off. Let’s look at the charts - 

Weekly chart

• Repeated failure to cut through the 50-MA since mid-December followed by a bearish 5-MA & 10-MA crossover and the breach of the rising trend line (dotted) points to a sell-off ahead. 
• The MACD has turned bearish and the RSI is below 50.00 as well.
• The cross could 136.47 (Jan low) and could possibly test the descending trend line (red) support seen around 130.00 levels. 

Daily chart