After much hype, Parliament never took the meaningful vote that they were gearing up to take. The House of Commons voted 322 vs 306 in favour of a key amendment by Oliver Letwin. This amendment means that any support that MP’S give to the new Brexit deal is withheld until legislation to implement the deal has been passed. In short, the amendment closes a loophole in the Benn Act, that could still have allowed a no deal Brexit.
Under the Benn Act Boris Johnson is now legally obliged to write a letter to the EU before 11pm requesting an extension to Brexit.
Shortly after the vote Boris Johnson was adamant that he would not negotiate an extension to Brexit with the EU. It is still unclear if he will obey the law.
What does this mean for the pound?
The FX markets are closed on Saturday so the first sight of any reaction in the , the principal barometer to ups and downs of Brexit, will be as the markets the open on Sunday evening.
Primarily pound traders are focused on the chances of avoiding a no deal Brexit and levels of uncertainty. With today’s vote once again increasing levels of uncertainty, the pound’s rally to a 5-month high in the previous week could start to unwind in early trade at the start of the week. The pound has made it clear that it is not in favour of continued uncertainty. The pound’s 6% rally so far this month is under threat.
The most important factor for sterling is what could happen next? Whilst on the one hand, today’s vote makes a no deal Brexit less likely, that is only dependent on the EU agreeing to extend article 50.
A refusal by the EU to extend article 50 raises the chances of a no deal Brexit substantially and could hit the pound hard.
Boris Charges Ahead
Boris has suggested that he will attempt to get the necessary legislation through this week regardless. This is politically a very ambitious plan. Depending on the House speaker, another vote could take place on Monday or Tuesday. Alternatively, this could also turn out to be a very drawn out process.
Bearish levels to watch:
Support can be seen around $1.26 and $1.24. Historically the pound has traded around $1.20 – $1.22 amid increased risk of a no deal Brexit. Further no deal fears could send the pound towards $1.1841 the 2016 lows.
Bullish levels to watch:
On the upside, resistance can be seen at $1.3150, $1.3185 and then next big level of resistance comes towards $1.34 at $1.3381
Rather than provide more clarity, today’s vote has muddied the waters further. There could be heightened volatility on the open for the pound and the increased level of uncertainty could dampen demand for sterling after a phenomenal previous week.
Short term levels to watch at the start of the week include $1.3050, $1.2990, $1.2780 and $1.27.