Even as British Prime Minister Theresa May is expected to face defeat on her Brexit deal, today marks a historic day for British politics with Parliament facing its most important decision since the second world war.
Uncertainty continues to dominate markets as a loss in Parliament today will leave Britain politically and economically tangled. Doubts of crashing out the EU without a transition deal have eased slightly but worries over what happens after PM May loses continue to dominate.
The size of Theresa May’s loss in Parliament will have different outcomes. A small loss could allow her to try again, asking Brussels for more concessions before trying to get her proposal through Parliament. However, a heavy defeat could lead to a potential delay of Brexit, crashing out with no deal or even having another referendum or general election.
Markets are positioned for a substantial government loss and therefore the initial reaction to PM May’s defeat may be subdued. Option markets are potentially over pricing the volatility expectation, though GBP volatility may increase over coming trading sessions as new alternatives to Brexit become apparent.
In the technical space a bearish backdrop remains intact for Cable. The rate has rejected 1.2890, the 50% fib level of the October-December decline, on its recent rally higher. A down sloping trendline helped with the significance of the aforementioned level and as a result, yesterday’s session saw a Shooting Star candle pattern form. This suggests a potential for greater downside risks.
In terms of trending setups, price is holding above the shorter term 21-Day EMA and currently resides at 1.2732. Due to the recent move higher the 21-Day EMA has turned higher and may offer some support. Price is now testing the 50-Day EMA which is flat and reinforced key downside pressures.
Momentum setups are at vital positions. The RSI has fallen from its high of 59 to 52 and is approaching is uptrend line. and the DI are negatively converging. A cross could potentially bolster the bearish sentiment. The ADX is below its key 25 level, indicating a non-trending market.
Key levels on the downside are 1.2709. Key topside levels are 1.2930, and the downtrend line.
Voting for May’s Brexit plan is due to begin at 1900 GMT
Note: GBP FX pairs will remain volatile over the next few days as the market will begin to take in more information on the alternative paths. UK equity markets will also remain volatile.
© Akif SH. Din MSTA, CFTe, AGORA-direct Limited, 15/01/2019
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