EU Considering Brexit Extension Request
If you are feeling confused by Brexit, you are not alone. As the October 31st deadline approaches, the UK is currently without a Brexit deal and consequently, the Prime Minister has requested an extension to Article 50. Last week, markets were watching hopefully as the UK agreed the terms of departure deal with EU leaders. Following a week of frantic meetings, EU leaders approved the PM’s proposals at the October summit held in Brussels. However, the UK PM failed to achieve parliamentary approval for the deal at a special Saturday sitting of parliament in the UK, the second only time that MPs have met on a Saturday in 35 years.
Following the PM’s failure to pass the deal, he was legally required to request an extension as per the Benn Bill passed by MPs before parliament was prorogued in September. The proroguing ultimately failed with the UK Supreme Court judging that the UK PM had suspended parliament illegally and ordering parliament to reconvene immediately.
Following his parliamentary defeat on Saturday, the UK PM submitted a request to the House of Commons to hold a second vote. However, the speaker of the house John Bercow blocked the request saying that second vote would be repetitive and unnecessary. However, following the publishing of the 110-page Withdrawal Agreement Bill on Monday night, MPs will later decide whether to support the PM's move or not. Johnson is still aiming to push a Brexit deal though by October 31st though today's parliamentary sitting will be Johnson's last shot at getting MPs support. Given the opposition Johnson faces it seems difficult to expect that he will receive MPs backing today, keeping attention on the request to extend Article 50.
With a further extension request having been submitted, attention is now turning to how the UK will proceed. The most likely outcome at this stage is a general election which could come as soon as November 4th according to the speaker of the house of commons. The election will essentially give the UK electorate the decision on how to proceed with Brexit. If labour gains government, its leader, Jeremy Corbyn, has said that he will hold a second referendum on whether to leave the EU. However, if the conservative party wins, Johnson will press ahead with a no-deal Brexit.
The ongoing uncertainty and confusion around Brexit is making it tricky for markets to gain a clear view on how to position. However, looking at recent price action in GBP suggests that traders sense that Brexit is becoming less likely. The EU is likely to approve the government's request for an extension to Article 50 which means that at the very least, Brexit will be delayed by another three months. This means that investors and UK businesses will avoid the reality of Brexit, maintaining the status quo.
If Brexit is delayed again, focus will then turn back to the BOE. Recently, leading BOE policymakers warned that the bank might need to cut rates ahead of any Brexit outcome to buffer the economy against the damaging impact of ongoing uncertainty. This marks a significant change in sentiment. The BOE had previously said that it would not make any decision on rates until Brexit was delivered. However, with Brexit continuing to be pushed back and now looking likely it will be delayed again, the ongoing uncertainty is taking its toll on the UK economy. Consequently, the likelihood of a rate cut is increasing at this point which could put an end to the current short squeeze in GBP.
Technical & Trade Views
EURGBP (Bearish, while.87 holds)
From a technical and trading perspective. Strength in GBP is keeping EURGBP weighed down. In line with longer-term VWAP, this move is likely to extend lower. Worth noting, momentum studies flag the risk of a short-term correction higher and I will be watching any retracements into the .87 – .8810 level for short opportunities.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!