UK Waiting On EU Decision
Boris Johnson’s final attempt at pushing his Brexit deal through parliament resulted in failure yesterday evening as once again, MPs failed to support the move. Following his initial parliamentary defeat over the weekend, Johnson had still been adamant that he would push on with a no-deal Brexit regardless, saying previously that he would rather “be dead in a ditch” than delay Brexit any further. However, following yet another defeat in the Commons, Johnson has said that he will now wait to hear whether the EU grants the UK’s Brexit request.
When the market first learned that the UK might request a further extension to Article 50, Donald Tusk, President of the EC, said that he would rule out a further extension saying that the issue needed to be finally resolved not simply delayed. However, in recent days we have seen a shift in sentiment from the EC president with Tusk now signalling that the EU could and importantly should grant a further Brexit delay of three months. If the EU approves the UK’S request, Brexit will be pushed back to 31st January 2020.
The drama we have seen in parliament over recent days has been incredibly confusing and last night’s episode was no different. MPs eventually voted in principle to back the PM’s Brexit deal, seeing a majority of 30 votes in favour of the deal. However, in a subsequent vote on the PM’s “programme motion” to rush the deal through commons, the PM was defeated by 14 votes.
Speaking following the vote, Johnson said “One way or another we will leave the EU with this deal to which the House has just given its assent.”. Johnson essentially has said that he remains confident, following the vote, that the UK will leave the EU via the terms of his deal.
In reaction to the outcome of last night’s parliamentary session, the leader of the opposition party Jeremy Corbyn said “Work with all of us to agree a reasonable timetable, and I suspect this House will vote to debate, scrutinise – and I hope amend – the detail of this Bill.”
Impact on Markets
So, what does this mean for traders? The bottom line is that in all likelihood, the EU will grant a further extension to Article 50, allowing the UK time to come to terms with the PM’s deal. MPs finally decided that they were in favour of Johnson’s 110-page Withdrawal Bill but could not handle the timeframe (Johnsons was looking of the deal to be rushed through in three days). However, the big question now will be whether the government calls an election. Prior to the vote last night, it had looked like Johnson would calla genera; election if defeated. However, given that MPs did actually back the deal but took issue with the timeframe, Johnson might now hold off on an election to avoid risking losing control of the situation.
In terms of next steps, Johnson said “The first consequence is that the government must take the only responsible course and accelerate our preparations for a no-deal outcome.
“Secondly, I will speak to EU member states about their intentions until they have reached a decision. Until they’ve reached a decision we will pause this legislation.
“Let me be clear – our policy remains that we should not delay, that we should leave the EU on October 31. And that is what I will say to the EU and I will report back to the house.
“One way or another we will leave the EU with this deal to which the House has just given its assent.”
The market is now waiting for the outcome of the EU decision. Ahead of this news, the uncertainty has seen GBP a little lower. However, as the EU has made it clear that it too wants to avoid a no-deal Brexit, the extension request is likely to be approved which should see GBP supported in the near term as the UK avoids the economic cliff edge of a no-deal Brexit.
Technical & Trade Views
EURGBP ( Bearish, while.87 holds)
From a technical and trading perspective. EURGBP is seeing some buying here, will be watching price action as we retest the yearly and monthly S1 around .8700. In line with longer-term VWAP, this move is likely to extend lower.
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