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Sterling should sail through ‘no deal’ vote

Sterling should sail through ‘no deal’ vote

Britain is set for uncharted Brexit waters, but is unlikely to sail today.

SNAFU

Another crushing defeat for Prime Minister Theresa May was book-ended by her now customary “passionate” recommitment to her Brexit deal, largely putting resignation talk to rest for now. From a markets point of view, that keeps the SNAFU intact. Another attempt to win parliamentary support for her formula can’t be ruled out but is unlikely to be floated this week. An election call is even more distant. Even clearer: MP’s appetite for ‘no-deal’ is low. As such, markets will downplay tonight’s vote. That draws more focus to the final one in this week’s triple-header on Thursday, when MPs will decide whether to call for a delayed EU departure. Probabilities appear to lie with ‘aye’. Beyond that lies more mystification. The first question is whether the unanimous vote by EU members required for a stay would materialise. If so, for how long? And so on.

EUR/GBP eyed

Recent sterling resilience suggests dividends from incremental ‘wins’, regardless. Benchmark gilt yields are outpacing German counterparts relative to the U.S.’s in an effort to get ahead of a potential Bank rate rise after a soft Brexit. Consequently, fair sterling sentiment is currently clearest in EUR/GBP. There, sterling is backed by falling daily tops and a failure to close above the 21-day exponential average (21-DEA). Pound buyers seek a test of the grinding swing into 0.8524 which could now support the euro after resistance there gave way on Tuesday. The bigger prize would be another tag, perhaps more, of 0.8474, Monday’s 22-month low. A second breach of the falling wedge forming since January is needed to get there. Downward momentum ought to go up a gear if that break is seen. For now, an orderly RSI suggests a stall can’t be ruled out. Bias would return to the euro if the rate can crawl back above key averages like the 21-DEA.

Chart: euro/sterling – hourly

Source: Refinitiv/City Index


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