GBP/USD called out by the markets following Brexit saga to the wire

• Six years ago this week, David Cameron promised an EU referendum in a Bloomberg speech while the euro crisis took hold and troubled the UK economy so much that austerity measures were extended for many years after the expected period following the financial crisis. 
• Sterling has been called out by the markets as we move into the 11th hour of Brexit negotiations.
• GBP/USD is currently trading at 1.3027, below the 1.3095 prior session highs and a touch off the ECB related lows of 1.3011.

Looking back, the pound was devalued significantly from the 1.50s vs the US dollar since the unexpected vote to leave the European Union back in 2016. The pound dropped to a low of 1.1985 before a strong recovery back to the low 1.40s amid hopes that progress on Britain’s divorce settlement with the European Union will smooth the way for the start of trade talks, emboldened by a strong hints from the Bank of England that it will raise interest rates sooner than previously expected, peaking in April 2018 before the next wave of supply down to recent lows of 1.2369 as no deal Brexit fears rolled in like a thunderstorm.  

In recent trade this year, following the flash crash lows, the pound has picked up a positive consensus from the markets, factoring in a soft Brexit outcome and cross-party efforts in parliament to at least delay a no deal Brexit by Article 50's cut off as both sides struggle to reach a deal before the clock strikes midnight on March 29, 2019. 

The Times newspaper reported that  Prime Minister Theresa May "privately accepts that she is powerless to prevent legislation removing the immediate threat of a no-deal exit proposed by Yvette Cooper of Labour."

However, it is going to be up to the EU if they wish to grant an extension to Article 50 and it is questionable, at this stage, as to whether a no deal Brexit, if a deal can't be reached between Britain and the EU that satisfies UK Parliment, can indeed be avoided altogether. Also, with European parliamentary elections falling in the middle of the year, it is yet to be seen what disruptions may come of that with respect to the length of time the EU will wish to grant the UK.

GBP/USD pushes to 2019 highs on soft Brexit optimism 

Nevertheless, sterling pushed to new 2019 highs on Wednesday, touching 1.3094 before tailing off to a fresh swing low on the hourly charts at 1.3011 as the DXY picks up the pace following the ECB's tweaks to the statement, pushing back rate hike expectations. The consensus supporting the pound, in a nutshell, is that a hard Brexit will be avoided and an extension to Article 50 will either lead to 2nd referendum, (that will be a logistical and political nightmare that could take a year of process and debates to solidify), or a Brexit stopping general election, (although prospects of such were dimmed by the government winning the no-confidence vote tabled by Corbyn on 16 January, securing 325 votes to 306 votes against).

We now move into the 11th hour of Brexit negotiations and Andrea Leadsom, leader of The House Commons, has confirmed that a statement and a motion of the governments next steps will be tabled on Monday. A full days debate on the motion will take place on Tuesday the 29th Jan subject to the agreement of the house.   

The opposition and backbench MPs have been tabling amendments to May's motion in a bid to force the government to change direction. Several different courses have been proposed and, in normal circumstances, one would be selected by the Speaker for 90 minutes of debate. None of these amendments, if successful, would be binding on the government, although support for any of them would put political pressure on Theresa May to follow their direction.

However, the one to watch is from Yvette Cooper. If her amendment was successful, and she then managed to get MPs to approve her bill, it would become law and so place an obligation on the government.

Labour MP Yvette Cooper's amendment

The amendment is as follows (BBC reports):

Attempts to rule out the UK leaving the EU without a formal deal by allowing parliamentary time to pass a new law.
The bill to bring in the new law would require Theresa May to seek to postpone Brexit day (currently 29 March) until 31 December, if MPs do not approve her deal by 26 February.

The prime minister would do this by asking the EU to agree to extend the two-year limit on Article 50 - the mechanism paving the way for the UK to leave the EU.

With the backing of senior Conservative backbenchers such as Nicky Morgan and Oliver Letwin, former Lib Dem health minister Norman Lamb and Plaid Cymru's Ben Lake, it is thought the initial amendment has a good chance of success.

Markets position for a dollar sell-off

Meanwhile, we wait and see and focus turns to other market positioning dynamics, namely in the greenback and EM-FX. The Fed has been put on the backburner during the Fed speaker blackout, and US data is scarce due to the US government partial shutdown. However, the real money has already started to move out of the greenback and there is sentiment for a sell-off. Should Brexit avoid a pear-shaped outcome, sterling has huge potential to rally when the BoE comes back into vogue and that is what the markets are starting to position for. On the other hand, massive uncertainties remain and a case for selling on rallies should keep the upside capped and sterling in no-mans land as bulls struggle to convince in the low 1.30s. 

GBP/USD levels

On the charts, the price rallied through the declining resistance trend line in the 1.28s but the 200-D SMA is key at this stage. Analysts at Commerzbank explained that beyond some near term consolidation at this juncture, they look for gains to the 55-week ma at 1.3304. "Here we also find re-target the July, September and October highs at 1.3258/1.3363. Initial support is the near term uptrend at 1.2865. It stays bid while above here. Only a rise above the July, September and October highs at 1.3258/1.3363 would put the June high at 1.3473 on the cards."