Market Overview

GBP/USD Forecast: Brexit Deal Defeat Is Priced In, The Margin Sets The Direction

  • The GBP/USD retreated from highs above 1.2900 to trade at mid 1.2800s as the risk of Brexit deal rejection is pricing in.
  • The UK Prime Minister Theresa May made a last minute attempt to push the deal through with a speech but she is unlikely to succeed.
  • With the Brexit deal rejection being a sure shot, the margin of votes is expected to set the direction for GBP/USD.

The May Day is here, with Sterling trading off its 8-weeks high above 1.2900 level at around mid 1.2800 ahead of the House of Commons voting on Brexit deal tonight. While Brexit deal is widely expected to be rejected by the House of Commons in a vote later tonight, the direction for Sterling is set to be given the margin of the loss.

The basic scenario is taking a 100 as a reference base. In case the Brexit deal is rejected by less than 100 votes the market would expect Prime Minister Theresa May to bring the deal back to UK parliament for a second vote. A loss of the Brexit vote by more than 100 votes would send Sterling lower. 

According to reports, the European Union diplomats have their own measure of 60 votes margin being the ground for hope with the EU possibly looking at new ways of setting the deal to get it approved. 

In the last minute attempt to revert the course of the history, the UK Prime Minister reminded the lawmakers on Monday in a speech that “when the history books are written, people will look at the decision of this House tomorrow and ask did we deliver on the country’s vote to leave the European Union, did we safeguard our security, our economy and our union, or did we let the British people down.”

Technically the GBP/USD broke a long-term downtrend on the upside with further gains limited by the Brexit deal vote uncertainty. With the rejection of Brexit deal in the UK parliament widely expected and priced-in, the potential is building on the upside depending on the margin of the Brexit deal loss. The margin of fewer than 100 votes is Sterling neutral-to-positive, depending on the actual number while above 100 is seen Sterling negative.

The technical oscillators like Momentum and Slow Stochastics are elevated and pointing downwards. The Slow Stochastics is set to make a bearish crossover in the Overbought territory. With Sterling waiting for key Brexit deal vote later on Tuesday, the currency pair is set to move sideways. On the downside, the GBP/USD needs to break below 1.2800 and 1.2770 to return to the old downtrend. On the upside, the 1.3000 is the next hurdle for GBP/USD.

GBP/USD daily chart


Posted-In: BrexitEarnings Government News Eurozone Forex Global Markets


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