Sterling shines on hopes for no Brexit as Parliament debates a no-deal

Mar 13,2019 09:24   Source:Forex Crunch
  • GBP/USD is rising from the lows as Parliament is set to reject a no-deal Brexit. 
  • Brexit-related developments are set to keep volatility high.
  • The technical picture is improving for the pair.

Parliament handed another devastating defeat to UK PM Theresa May’s amended Brexit deal. The House of Commons rejected the accord with a whopping margin of 149 MPs. While it was smaller than the 240-gap seen in January, it is far from being remotely close.

The small window of hope for approval was closed earlier on Tuesday by AG Geoffrey Cox. While saying that the modifications constitute “material changes”, they do not reduce the risk of the UK being trapped in the EU Customs Union. His verdict was not enough to convince hard-Brexiteers nor the Northern Irish DUP Party.

Parliament now votes on a no-deal Brexit.

GBP/USD had already priced in such a failure and did not extend its falls on the vote late on Tuesday. Lawmakers will now vote if the UK should leave the EU on March 29th without a deal and expectations stand at an overwhelming rejection of this messy outcome.

The following step is on Thursday, with a vote on asking to postpone Brexit. Also here, the forecast is positive: that the House will instruct the government to ask for an extension of Article 50.

These expectations boost the pound. GBP/USD has risen from the lows in the mid-1.3000s to the mid-1.3100s.

What’s next for Brexit?

For how long? Speculation stands at a short extension: May 22nd and the end of June are on the cards. The EU needs to approve it unanimously, and it seems that will the case.

And what will happen afterward? May may attempt a third vote on the accord, but an approval remains unlikely after these two defeats. A second referendum, snap elections, and a no-deal Brexit is all open options.

Are some traders hoping that Brexit can be canceled altogether? A second referendum is always an option.

And in the meantime, the government is preparing for a no-deal exit. Whitehall published the potential new tariff regime, which includes no duties on 87% of goods. In addition, there will be no checks on the border between the Republic of Ireland and Northern Ireland, allowing goods from the EU to enter unchecked. All sides vowed to maintain the Good Friday agreement and leave an open border on the Emerald Isle. However, London says the measures are temporary.

In theory, if everything goes to plan, these contingency plans will be shelved as the UK will remain in the EU for a bit longer.

Parliament is due to vote at 19:00 GMT, but statements from politicians are set to rock Sterling throughout the day. The level of volatility is set to remain elevated.

In the meantime, Chancellor of the Exchequer Phillip Hammond will present his new budget via the Spring Statement. Any new economic forecasts will likely be ignored as everything depends on Brexit.

Apart from Brexit, the US releases Durable Goods Orders and an increase in investment is expected. US inflation came out slightly below expectations on Tuesday.

GBP/USD Technical Analysis

GBP USD technical analysis March 13 2019

The technical picture has improved for cable. Momentum turned positive and the pair is edging above the 50 Simple Moving Average on the four-hour chart.

Immediate resistance awaits at 1.3150 that capped the pair recently and also did so earlier in the month. 1.3180 was a high point last week and 1.3280 was the gap high in early March.

1.3110 was a swing high in mid-February and last week. It is followed by 1.3060, where the 200 SMA meets the chart. 1.3020 was a support line in mid-February and 1.2960 was the low point early this week.

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