GBP/USD. And again Brexit: the pound fell into the zone of turbulence

The situation in the foreign exchange market is changing rapidly: in the morning the pound-dollar pair showed a positive attitude, taking advantage of the weakness of the US currency – but in the second half of the day the British sharply fell throughout the market, testing the 25th figure paired with the greenback. It was followed by the euro, which was unable to hold local highs and hastily returned to December positions. After the New Year holidays, traders again remembered Brexit, the prospects of which are still very vague.

The immediate reason for the price collapse of the GBP/USD was the message that Theresa May is holding an emergency meeting of the cabinet ministers today, on the agenda of which there will be only one issue – preparation for a "hard" Brexit. Traders reacted anxiously to this news, although, in my opinion, today's situation should be considered
Why does May again begin to escalate the situation, "scaring" politicians with hard Brexit?
Other proposed scenarios look too ephemeral to "compete" with the draft deal proposed by May. That is why in the coming days the situation will only escalate: supporters of the prime minister will, under any pretext, "scare" the public and politicians with catastrophic consequences of a hard Brexit. This strategy can persuade doubting MPs that a bad deal is better than a chaotic option – especially in the absence of clear alternatives.

Traders of GBP/USD, in turn, will have to be patient: the pound reacts sharply to any comments or events related to the prospects of the "divorce process". Therefore, the period of "panic" will be perceived by the British quite painfully. At the moment, the pair is heading to the nearest, strongest support level of 1,2505 (the lower line of the Bollinger Bands on the daily chart), where a corrective pullback may follow.

Analysis are provided by InstaForex