Sterling optimism wanes ahead of crunch vote

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By :  ,  Financial Analyst

The pound crawls as uncertainty increases

Sterling has steadied below 2019 highs but last night’s optimistic pace has slowed to a crawl as the week’s third vote looms. If anything, outcomes are becoming even less certain for four key reasons.

  • Some senior EU officials are dropping barely veiled signals about a “long extension”. The type that could pave the way for the UK to remain within the union
  • Such comments could deter pro-Brexit MPs from opting for a short A50 delay tonight
  • Amendments linked to tonight’s votes far outnumber those in recent Brexit votes, increasing complexity
  • A reported push by some MPs to instigate ‘indicative votes’—which would have at least improved visibility somewhat—hasn’t materialised. The government neutralised this initiative by offering indicative votes if Brexit is delayed by more than a few months.

As such, nine-month highs for sterling against the dollar and almost two-year highs versus euro look to have priced soft Brexit prospects completely, for now. The cost of sterling options is elevated from 24-hour trades up to those lasting about month. In other words, markets are short-term nervy, medium-term relaxed; which isn’t sustainable.

From a chart perspective, sterling bulls have capitalised on the wait for tonight:

  • Despite evident volatility, a revealing GBP/USD minor trend line is intact
  • A fracture would signal trouble for buyers
  • Fine oscillators are inching towards a positive bias
  • But sentiment is fragile: $1.3340 could easily cap without fresh impetus
  • Bears would re-take control below $1.296

Source: Refinitiv/City Index

Related tags: Euro Forex Brexit EUR GBP

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