Time factor could push Britain to leave without a new trade agreement.

Time factor could push Britain to leave without a new trade agreement.

The formal negotiations between the parties of leaving the EU on May 2017, has actually began.

Negotiations will include trade, political, immigration, labor agreements and many other regulations that have been organizing the Union over the past forty-four years.

On the commercial side, the time factor is the major challenge that could result in a leave before setting any new trade agreement. Two years have not been sufficient to discuss such an agreement. These agreements usually take long time periods. The last agreement between the EU and Canada took seven years to get arranged, while targets were already agreed between the two parties. This is not the case now, challenging the agreement. The EU insists that UK must pay its monetary duties of 50 billion pounds before starting the negotiations. The UK aims to discuss the leave while negotiating a new trade agreement.

If this happens, The UK will be able to find alternative trading partners such as the United States, India or China. However, this change could lead to increased market uncertainty, with negative implications for the GBP.

The negative consequences may increase for two additional reasons:

The first is Scotland’s demand of a new independence referendum from the UK. A “Yes” vote could signal the beginning of the UK dissociation.

The second is the internal political opposition for Teresa Mae, which is calling for early elections.

Therefore, the GBP remains under pressure in the near term, with negative risks surrounding the Kingdom’s economy, the currency will be targeting 1.2320 and 1.2240. In the long term, a successful closing below 1.2000 will extend Bearish pressure to target 1.1600. Only a sharp fall in the USD could limit the GBP/USD declines.

The GBP/JPY might have sharper declines. The volatility will lead to a GBP decline while increasing the demand for safe haven, such as the Japanese Yen, thus the pair might be targeting the 131.50 level.