Sterling has rallied strongly on Brexit progress, which also had the impact of generating a risk-on sentiment in global stock markets, with Brexit uncertainty having been on the global worry list given the deleterious impact that it’s been having on the European economies.
Cable rallied 2.4% from Friday’s closing levels in making a 12-day peak at 1.3287. UK Prime Minister May won some legally-binding concessions on the Irish backstop issue after meeting with EU’s Junker and Barnier last night, which has given May’s Brexit deal a fighting chance at today’s vote in the House of Commons, although the Brussels concessions still leave the UK without the option of unilaterally revoking the Irish backstop, and it’s not clear if they will be enough to move the needle in Parliament significantly.
Brussels conceded on 2 items:
- On a “joint legally binding instrument” in the Withdrawal Agreement, which allows the UK to raise a “formal dispute” against the EU if it tries to keep the UK tied into the backstop indefinitely.
- A “joint statement” adding to the Political Declaration, which concerns the UK and EU’s future relationship, to commit to replacing the backstop with alternative arrangements by December 2020.
A third document tabled by the UK, but not agreed to by the EU, was for a “Unilateral Declaration,” whereby the UK would, in the event that the backstop comes into force and negotiations on the future relationship break down with no prospect of agreement, instigate measures that would dis-apply the backstop.
Labour and other opposition parties indicated it would still vote against May’s deal today (tabled for this evening in London), and its prospects will depend on Northern Ireland’s DUP and how many of the 60-odd Brexiteer faction of the Tory party will vote for it. Feedback from members of these groups have been mixed so far and, given the wafer thin majority of the Tory-DUP minority government, it’s not crystal clear that there will sufficient votes for it to pass.
In the event that May’s deal flops, a delay in the Brexit process would be all but inevitable. It would then be up to the EU to agree on an extension to the Brexit process. It is expected that the Brussels will stand in the way of this as it will be wanting to avoid a no-deal-by-accident Brexit scenario. The EU will also be in a position to decide on the length of delay, and what conditions are attached. In the unlikely event Brussels refuses to grant a delay, the UK could still unilaterally revoke Article 50 (i.e. stop Brexit).
In the Brexit-delayed scenario, a political power shift would likely be seen, away from May’s government and to a cross-party coalition of parliamentary members favouring a soft Brexit, such as the Norway-plus model, and quite possibly subject to a ratification referendum, which would open a route to the UK remaining in the EU.
There is also a chance that the Brexiteers, faced with this prospect, are in fact privately (so as to keep the pressure on Brussels) intending to vote for May’s deal even if Brussels doesn’t shift on the Irish backstop.
Nonetheless, market impact has been positive. One narrative is that this is the best deal that the Brexiteers are going to get, and voting against it today would only greatly increase the chances for either a softer version of Brexit or no Brexit.
Firmer stock markets have seen the some of the Yen’s safe haven premium unwind. While USDJPY has remained buoyant, but capped under 111.50, EURJPY, AUDJPY and CADJPY, among other Yen crosses, managed to carve out 3-day highs, and GBPJPY a 6-day peak.
Cable remains to the upside overall after the rebound seen yesterday, having decline in the European session below 1.3168 Support, on the latest Brexit news but managed to claw back losses as the currency came down from highs on the realisation that the concessions may not be enough to secure a deal (BBC political Editor Laura Kuenssberg gives a pessimist tone, EU’s Juncker states that there won’t be a 3rd chance on Brexit).
Our agreement provides meaningful clarifications & legal guarantees to the Withdrawal Agreement & #backstop. The choice is clear: it is this deal, or #Brexit may not happen at all. Let’s bring the UK’s withdrawal to an orderly end. We owe it to history. https://t.co/lfy9eehEZi pic.twitter.com/XCqcLwZV7V
— Jean-Claude Juncker (@JunckerEU) March 11, 2019
Resistance levels are set at 1.3200, 1.3240, 1.3266 and the round 1.3300 level. Next immediate Support remains at the 1.3168 (200-day EMA) and the 1.3130 level (50% Fib.) A swing and a sustain move below the latter could open the doors to 1.3070-1.3088 (confluence of 61.8% fib. level since 1.2960 lows and the 20-day SMA)
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Andria Pichidi
Market Analyst
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