Market Overview

GBP/USD: Bulls Are Back

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  • GBP/USD is trading at the highs of the range once again.
  • Speaker Bercow refusal for a repeat Brexit vote has its upside.
  • The technical picture remains positive for the pair.

GBP/USD is trading in the upper half of the 1.3200 handle, back to the highs. Cable crashed on Monday after a surprise intervention by House of Commons Speaker John Bercow. The ever-active Speaker stated that the UK government could not bring the exact same Brexit deal to a repeat vote in Parliament, throwing a spanner in the government's plans.

The plan was to have a third Meaningful Vote (dubbed MV3) before the EU Summit on Thursday. More and more Conservative lawmakers were warming up to supporting the government as the other option is now an extension of Brexit. 

Bercow threw a spanner in the wheels of these plans and sent the pound plunging. However, there is an upside to all this.

First, several procedures can allow the government to push through with a vote in any case. One is to end the current session of Parliament and start a new one, a procedure called "proroguing." This may take time, would require another Queen's Speech, but could put the plans back on track.

However, there is a more natural solution. According to The Guardian newspaper, the EU and the UK may agree to postpone Brexit to late June or early July and then bring the accord to the House. This would constitute a material change that Bercow would be unable to block. Such a modification could occur at the EU Council.

Such a move would remove the risk of a no-deal Brexit on March 29th, which is only ten days away. 

Another route is the long extension, and this already has a higher upside. According to the Sun newspaper, PM Theresa May is already drafting an extension letter to the EU, asking for a delay of 9-12 months. Markets will be happy with a long pause. Anything that does not happen now may never happen.

The prospects of 9-12 months Article 50 extension may also convince Brexiteers to change their minds and vote for this agreement rather than risk losing Brexit altogether. 

Brexit developments have the upper hand in moving the pound. Bercow's block came out of the blue, and additional surprises cannot be ruled out in the Brexit saga.

Nevertheless, GBP/USD will likely move on the jobs report, at least for a short time. The unemployment rate is projected to remain at the low levels of 4% and wage growth to remain above 3%, and more importantly, way above inflation. The Bank of England convenes on Thursday and will eye the data. Yet also for the BOE, Brexit paralyzes everything. 

GBP/USD Technical Analysis

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GBP/USD is trading well above the 50 and 200 Simple Moving Averages on the four-hour chart. While Momentum has eased, it remains positive. The Relative Strength Index is rising.

The pound/dollar chart has become choppy, and there are quite a few spikes. These can be viewed as false moves, and we stick to the more substantive levels.

Immediate resistance awaits at 1.13300 that capped cable on Monday and also beforehand. 1.3350 was a peak in late February. The cycle high of 1.3388 is next.

Support awaits at 1.3200, that held the pair down in early March and provided support last week. 1.3110 was a separator of ranges in early March. 1.3070 provided support and also converges with the 200 SMA. 

 

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