Date: 15 Jan 2019

The British pound is trading at its highest level against the US dollar since mid-November as UK lawmakers prepare to finally vote on British PM Theresa May’s controversial Brexit deal in UK Parliament later today. Sterling had spiked to 1.2930, on Monday, after reports surfaced that the European Research Group are willing to back British PM Theresa May’s Brexit deal, the ERG has subsequently denied the reports, although sterling is still holding firm around the 1.2900 level.

The GBPUSD pair started to rally on Friday, as investors priced in the possibility that the United Kingdom may extend its March 29th departure date from the European Union if UK lawmakers vote down PM May’s Brexit deal this week. Speculation is also mounting that PM Theresa May could call for a second vote on her Brexit deal if she is defeated today, as Conservative party whips once again attempt to gather the support needed to eventually PM May’s deal.

The move higher in sterling could also be categorized as short-squeeze, as chances appear slim for PM May’s passing her deal into law later today. The foundations of the sudden rally in the British pound are built on pure speculation at this stage and without any official confirmation, the actual outcome or outcomes of a no-vote in Theresa May’s Brexit deal in UK Parliament later today are still far from certain.

Following a defeat in UK Parliament later today, a vote-of-no-confidence towards PM May would likely trigger sterling selling, as would a call for a general election by opposition leader Jeremy Corbyn.

If Theresa May handed in her resignation, we could certainly see the British pound sell-off, due to the short-term uncertainty this would create towards the UK economy. The chances of the United Kingdom leaving the EU on March 29th without a deal in place then became more heightened, especially if a new pro-Brexit leader is elected.

The more positive outcomes for the British pound later today include the unlikely event that Theresa May finds the backing in Parliament to pass her unpopular Brexit deal or a delay of the actual vote itself. The call for a second referendum on Brexit seems unlikely at this stage, although it cannot be ruled out altogether.

 

GBP/USD Daily Candlestick Chart. Source ActivTrader Platform

GBP/USD Daily Candlestick Chart. Source: ActivTrader Platform

 

Looking at the key technicals for the GBP/USD pair, the 1.2810 and 1.2660 levels are the most prominent support areas to watch, a loss of the 1.2660 level should be considered heavily bearish for sterling, and we may then revisit the lows of 2018.

If we continue to see the GBP/USD pair rallying, buyers may soon start to test towards the 1.3000 benchmark, a strong move above this key psychological barrier may prompt further technical buying towards the 1.3095 level, with the 1.3300 level the key resistance area to watch on any overextended moves higher.

The meaningful vote on Theresa May’s Brexit bill is expected to take place between the 1900 GMT to 2100 GMT time window in UK Parliament today.

 

Written by Nathan Batchelor, External Analyst

 

*The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.

All information has been prepared by ActivTrades PLC (“AT”). The information does not contain a record of AT’s prices or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of futures performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at its own risk.