Supreme Court rules parliament must hold vote on Brexit

The GBP/USD initially rose in the immediate aftermath of the Supreme Court’s decision that the parliament must hold a vote on Brexit. This was a predicable outcome. However sterling then fell sharply as traders responded to news of additional ruling that the UK’s devolved assemblies will not have a vote on Brexit. But just as quickly, the currency then recovered most of its losses to trade near $1.25 again at the time of this writing.

The long and short of it is that the Supreme Court’s ruling will hand lawmakers a chance to soften the government’s plan on leaving the European Union, but that legislatures in Scotland and Northern Ireland won’t get to vote on the Article 50 process. So, in a way it does raise the prospects of it being a ‘soft’ exit from the EU rather than a ‘hard’ one, but there is no way of knowing exactly how soft or indeed hard just yet. Nevertheless, in theory this should be net positive for the pound and UK stocks.

But as mentioned last week, I do believe that the GBP/USD may have carved out a bottom for the time being. Most the pound-negative news may already be baked in the price. Also, with incoming UK data generally pointing to higher inflation and growth rates, the impact of the Brexit vote has so far been positive if anything. Market participants may therefore find it difficult to justify initiating new sell positions on the currency at these already-depressed levels.

From a technical perspective, the cable may be able to climb back towards 1.30s again now that it has created a higher high above the old resistance level of 1.2415. So there has been a break in market structure, which increases the likelihood that it may have created a major double bottom reversal pattern around the psychologically-important 1.20 handle. The next level of resistance that the GBP/USD will be facing is at 1.2565, the low from the last daily green candle prior to the down move. Above here, there is little further resistance seen until the 1.2770-1.2800 area (shaded in red on the chart).

My bullish outlook on the GBP/USD would become weak if the sellers now manage to reclaim the broken resistance level at 1.2415. If so, this may pave the way for a drop towards the next support levels at 1.2265 or even 1.2175. Meanwhile if the cable creates a new low below the 1.20 handle then the bullish view would become completely invalid.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.