The GBP remains core to my trade thinking as this week’s EU emergency summit ticked all the boxes for a ‘finalised Brexit deal. The future question is how this will be received in the UK.
I wrote a Brexit special last week looking at the key events that are likely to take place over the coming four weeks. It is make or break time for Brexit and some argue make or break for Theresa May – I’m not convinced that the next four weeks will spell her end but I do believe she will not be occupying Number 10 come April 2019 – an event that could be taken any manner of ways by traders.
Over the weekend, two key events took place that are likely to be seen as positives from a FX trading position and particularly Cable and EURGBP (GBP positive)
1. The issues surrounding Gibraltar were finalised as Spain agreed to terms around future of ‘The Rock’ post the UK leaving the EU. This meant Madrid did not veto the Withdrawal agreement handed down by the 27 member states late on Sunday night.
2. The ‘divorce’ settlement and the 585 page ‘Withdrawal Agreement’ were accepted and endorsed by the 27 EU members states and British Prime Minister Theresa May, this official paves the way for Brexit to be finalised by the cut of date – March 29, pending the vote on the floor of the Commons.
The open of the FX markets on Monday will be interesting and come with a clear warning: mind the gap. Look for direction and momentum after the market settles it is likely to be a wild open – again my view is on aggregate the GBP will strength over this short period (the next 5 days or so).
The final summit of the EU for 2018 will take place next week – again likely to see no major changes to the Brexit agreements and is likely to be supported by Number 10 and most of Theresa May’s Cabinet ministers a further net positive for the GBP.
However, as I stated in the Brexit Special, the Commons is another matter. Currently the numbers on the floor that should vote for the Withdrawal agreement is raze thin. There are at least 25 Tory MPs that believe the Withdrawal agreement isn’t the ‘true’ Brexit and most are likely to vote against it on the floor.
Then there is May’s coalition partner in Northern Ireland the DUP which, is also against the deal due to the Irish ‘backstop’ (a hard border between Ireland and Northern Ireland). There is a strong belief the DUP will be whipped into line closer to the vote however at their National Conference was held on Saturday and they remained defiant even embolden by what they see as ‘pitiful’ deal for the UK.
If the DUP did hold the line come the vote on the floor and the 25 Tory MPs do too – not only will the vote fail but the second vote looks improbable as it would mean finding 35 ‘other’ MPs from the likes of Labour, the Green and the Lib Dems none of which agree to Brexit either.
I am fully aware of this point and will be reversing the GBP call as soon as it becomes clear the Agreement will fail on the floor. This might mean exiting positions as soon as Friday, have your stop near.