Summary:
- Key week for Brexit ahead
- No-deal probabilites rising
- 1.2960 key support for GBPUSD
Key events to watch this week:
Monday: PM May statement and vote on Cooper-Letwin
Wednesday: Special EU summit on Article 50 extension
Friday: Still the default date the UK leaves the EU
The pound is edging higher at the start of what could be a decisive week for the currency with Brexit once more at the front and centre of traders’ minds. With the UK government asking for another extension last week, the most likely outcome seems to be that this will be granted by the other 27 EU members but the chances of a no-deal are creeping higher. It is now abundantly clear that none of the key decision makers in the process desire a no-deal outcome, but that’s not to say it won’t happen and as Friday’s current deadline draws closer the chances of the UK crashing out of the EU remain uncomfortably high.
Several banks and funds have revised higher their views on the chance of a no-deal Brexit and while they all still have this below 50% the risks remain uncomfortably high. Source: Reuters, various banks and asset managers
Cooper-Letwin Bill could have unintended consequences
Even though PM May is scheduled to deliver a statement on her proposed Brexit extension and the House of Lords will vote on the Cooper-Letwin Bill (legislation which is intended to force the government to seek an extension up until a date that MPs could specify) today will likely serve as merely a prelude of things to come. While proponents of Cooper believe that it will reduce the chances of a no-deal, it could in fact have the opposite effect as pointed out over the weekend by Lord Pannick, a leading QC. The bill would seemingly tie Theresa May’s hands in reacting to an emergency last minute offer and require parliamentary approval. In a similar vein to the legal process required to revoke Article 50, there is a real concern that these measures will take up vital time, which, with the UK teetering on a cliff edge provides ample opportunity for a misstep. Wednesday will see EU members convene to discuss the proposed extension, leaving precious little time ahead of Friday’s deadline for an alternative course should they not unanimously approve it.
1.2960 remains a potentially key level to watch in GBPUSD this week with prior swing lows coinciding with the 200 SMA. 1.3195 and 1.3380 resistance. The range is remarkably narrow of late (circa 400 pips for 7 weeks). Price could be coiling ahead of a big move with Brexit developments almost certainly holding the key. Source: xStation
