Brexit update on the original Brexit date

Summary:
- Still no consensus seen on the UK political scene
- Theresa May lost third “meaningful” vote today
- EU Council President Tusk called for emergency Brexit summit on 10 April

29 March is finally here and the United Kingdom is still in the European Union with no clear signs of leaving it anytime soon. Another tumultuous week in the UK politics is coming to an end and just as it was in the case of previous such weeks - we barely know anything new. In this article we will provide an update on what has happened this week, where are we now as well as what looms in the next week or two.

GBPUSD was trading higher for the major part of the day but turned lower once the debate in the UK parliament began. Once the defeat was announced, the pair erased all the previous gains and dipped to the vicinity of 1.30 handle. Note that in case the drop is not contained some more volatility may surface once the pair reaches 200-session moving average (purple line on the chart above). Source: xStation5

When it comes to Brexit, the week was launched with quite a blockbuster development, at least it was seen as one initially. Namely, the UK parliament “seized” control over the Brexit process. However, this does not mean that MPs will from now on guide any negotiations - it just gave them a possibility to scheduled a range of votes on alternatives to Theresa May’s Brexit deal. Such votes were held on Wednesday and, as one could have expected, did not result in any breakthrough. Amendment opting for a no-deal exit gathered least backing. In fact, all 8 amendments that were put under the vote on Wednesday failed to get backing showing how divided the United Kingdom is.

Theresa May gets more and more backing with each subsequent vote. Source: Bloomberg

This failure left Prime Minister Theresa May with little choice but to hold another “meaningful” vote on her Brexit deal after trying to win some backing behind the scenes. Concern was that such a vote will not be allowed to happen as Speaker John Bercow said the deal must be changed fundamentally before it can be voted on. The vote was eventually allowed to happen today as change of the Brexit date from 29 March to 12 April was seen as fundamental enough. The odds ahead of today’s voted pointed for another defeat and that was exactly what happened. However, it should be said that each subsequent “meaningful” vote saw margin of defeat being narrower than the previous one (see chart above). This may mean that either assurances granted by Theresa May to UK MPs convinced them or threats that failure to back the deal makes Brexit less probable at all took their toll. In spite of what the real cause is, in case the Brexit debate is to be further played out like this (with lots of votes) there is a chance that eventually we will hear Speaker John Bercow yell “Ayes have it”.

UK100 (FTSE 100 futures underlying) broke above the 200-session moving average today thanks to the plunge on the GBP market. The UK index trades above the 7200 pts handle that limited upward moves during the past month and a half (spare for the false breakout in the previous week). Recent peak at 7295 pts can be seen as the closest resistance levels. Note that the downward sloping trendline runs in this area as well. Source: xStation5

However, one should be aware that the European Union will have a say as well. While the common view is that the EU wants as soft Brexit as it can be, time is running short for any more concessions to be granted. In case the UK fails to back any deal by the current hard deadline of 12 April, it will have to schedule elections to the European Parliament. Such a scenario is likely to lock the United Kingdom within the bloc for a long while. We are likely to get more details on the matter in two weeks as the European Council President, Donald Tusk, called for an emergency Brexit summit on 10 April. Nevertheless, it should be noted that after each subsequent vote in the UK parliament debate over holding general elections or second Brexit referendum intensified. This may be the backbone of next week’s discussion in the UK parliament as Remainers are likely to at least try to use another defeat to advocate preventing Brexit.