Theresa May’s Brexit deal is dead on arrival once again
Cable has now slipped to a low of 1.2666 on the session, its lowest level since 4 January and closes in on support from the swing region around 1.2660-70. However, a daily close below notable support around 1.2696 should be enough to reaffirm the downtrend we’ve been seeing over the past two weeks in my view.
Beyond this, further support is only seen around 1.2620-30 levels before light bids around 1.2600. But technically speaking, we could see a fall back towards the December and January lows and the 1.2500 handle if things continue down this path.
The pound did rally overnight on hopes that May’s deal will be compelling enough to change the minds of lawmakers, and she even included the potential for a second referendum. However, when the dust settled, it’s all but clear that the bill she is bringing to the table won’t gather the needed votes to succeed.
Currently, there’s even talks of her potentially being ousted as early as Sunday, leaving her with no chance to bring her bill to a vote in parliament.
Regardless, the focus for the pound will now start to turn towards the Tory leadership contest. As such, the currency will stay pressured because the rhetoric remains the same as we have come to know since last week. Once again, I’m still inclined to sell rallies from here until something changes on the Brexit front. From Monday:
For now, she’s promising a «bold new offer» on the withdrawal agreement bill in two weeks’ time but it’s time to face reality, that isn’t going to happen and she won’t win enough votes.
As such, we could be in store for a more prominent Brexiteer at the helm next in the form of Boris Johnson — who is the current front-runner. That raises the risks of a no-deal Brexit when push comes to shove in October. Also, regardless of who the next prime minister will be, there’s every possibility that we could see early elections as well.
Whoever that is appointed will want to lay out their own mandate so we could see increased volatility and uncertainty on the domestic front (potential Labour government?) and when you put all those pieces together, it doesn’t paint a pretty picture for the pound.
Given that there’s still so much uncertainty still left to deal with, the path of less resistance is still for a weaker pound currently and I would expect any decent rallies to be sold into given such circumstances.