What happens to the pounds when Article 50 is finally triggered - another look

To disappointment of all bulls in GBP, including several banks, this is the official start of the process Brexit and in any cases will continue for many months.

Some might ask why there are so many short positions added recently, but it's not just because the trigger is pulled. There may be some in knee-jerk short positions, but also other longs, hoping for prices to climb higher.

Reactions on the news these days are not the same as before. Experienced traders know that and have already factored it. Currently, about two thirds (at least in London) of transactions are manually executed, and the rest by algorithmic trading systems.

The basis of the enormous drop on the British pounds after the referendum in June last year, is the uncertainty that accompanies the UK on the way forward, trying to separate from the EU and negotiate terms that are advantageous not only for them but also for business partners and allies around the world.

The official activation of Article 50 tomorrow will not alleviate any of these problems. In fact, it could say that for almost one year (changed) UK government seems even less prepared or formed in its view than it ever has so what's going to change so quickly over the next few days and months.

Negotiations are expected to continue about two years, but could be even longer. It can be a lot less, but this seems unlikely given how much bargaining has to be done. The EU has its own problems to deal with such as elections in France and Germany this year.

We must bear in mind that this week is the end of the month and demand for EURGBP and year-end JPY demand together can support pounds and alleviate the effects of the meetings tomorrow, Thursday and Friday. Trump-related USD supply may help underpin GBPUSD

We can not predict with a great accuracy what the outcome tomorrow so we have to play the outcome as it pans out. We may well see moves up/down of 100-200 pips but I can't see any justification for larger moves either way at this time. Overall though bears like me will be happy to sell into rallies until otherwise convinced. Patience may be needed for best value entry but that's not so bad.

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