The pound has found demand on prospects of a Brexit-deal breakthrough and some robust data that has surprised markets. «While speaking at a news conference in Hague, German Chancellor Angela Merkel said that they can work on finding a regime that keeps the Good Friday agreement and also ensures the integrity of the EU’s single market. »We can also find a backstop solution by October 31,« Merkel added. The British pound gathered strength on these remarks and the GBP/USD pair spiked to a three-week high of 1.2241.
How fickle the markets can be, and forgetfull for that matter. » It was only yesterday that Merkle was saying that he was prepared for a no-deal Brexit .
Unless there is some miracle that Boris can conjure up between now and Oct 31st, Britain WILL leave the EU without a deal. Between now and then expect GBP volatility, especially as MPs return from summer recess on the 3rd September which will be accompanied by a set of very inconclusive headlines. There will be MPs that will be trying to stop a no-deal Brexit, including Labour leader Corbyn. Perhaps, after all, PM has a working majority in the House of Commons of just one.
However, Corbyn’s popularity rating has hit the skids in recent weeks, so timing is key and it may not be a tactically wise decision at this time. and, in the same vein, some Labour MPs represent Brexit-backing constituencies and could abstain or vote in favour of Johnson.
« Although a no confidence vote in the PM could usher in a caretaker government, this would be temporary and the UK could be faced with a snap general election potentially before the end of the year. This would mean continued political uncertainty in the UK and an even more prolonged period of Brexit ambiguity. Consequently even though a delay to Brexit would likely trigger some relief in GBP markets, we anticipate that EUR/GBP could be hard pressed to fall below the 0.90 level on this scenario on a three month view. » One of the periods that stands out n the daily charts were back in 2015 when cable was thrown about between 1020 pips over three consecutive days when the ATR was just 127 pips.
This was before Brexit and when the MPC was remarking about the strength of the currency, where two members thought about voting for hikes again. Throw in Brexit, tradewars, the European and Chinese recession talk, debt leveraged derivative markets and a massive shortfall on offshore Dollars in EM markets … , 1000 pip moves could well be back on the cards. 1.2000 is key to the downside while 1.2600 is the equivalent to break the recent ranges.
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