The formal divorce process between the UK and the European Union will officially start on Wednesday, 29th March 2017, when UK Prime Minister Theresa May triggers Article 50 of the Lisbon Treaty.

Investors are looking for more clues about British pound’s movements on short, as well as on longer term, in light of beginning of the process that happens for the first time in the history of the European Union.

Traders expect the final Brexit deal to determine longer-term outlook for sterling, as politics are expected to be among currency’s top drivers. Beginning of divorce process is expected to give clearer picture of Brexit risks, as EU’s respond to PM May’s vision of Brexit process, suggests that transition process to final divorce is unlikely to be smooth.
British pound lost around 12% on initial fall after results of June 2016 referendum were announced and slipped further in the months that followed. Against the US dollar, sterling hit the lowest level in 32 years in January 2017, on probes below psychological 1.2000 support, marking total loss of 20% after Brexit vote.

The pound managed to recover some losses since then, driven by better-than-expected releases of UK’s key economic indicators. UK inflation hit its highest in over three years, which fueled expectations that the Bank of England could start increasing interest rates more quickly than expected, particularly after the minutes of the BoE’s latest meeting showed that one policymaker voted for a rate hike.

Cable was in strong rally from 1.2100 zone during past two weeks and regained 1.2600 zone, also backed by fresh weakness of the dollar. Short-term action remains in strong bullish mode and eyes the first layer of key barriers at 1.2700/1.2800 zone, break of which would expose psychological 1.3000 resistance and open way towards next significant technical barrier at 1.3150.
However, sterling is expected to remains at high risk and could come under increased pressure as Brexit negotiations unfold.

Two strong supports at 1.2100 and 1.2000 zone, mark key levels for stronger bearish acceleration, as break of these supports could trigger significant losses in the medium term towards 1.1000 zone, with possible extension towards 1.0520, low of 1985.