Brexit: Growing chance of Article 50 delay, Long opportunity on GBP/USD?

  • The UK government and parliament are "boxed in" with 78 days until Brexit.
  • There are growing chances of delaying Article 50.
  • GBP/USD could benefit from kicking the can down the road.

The UK government lost two procedural votes related to the all-important Brexit vote on January 15th. It is hard to see how OM Theresa May can muster support for the deal. According to PreditIt, there is only a 3% chance of approving the accord. Pundits talk about the margin of the loss and what can happen next.

There are various options. One is further negotiations with the EU and that parliament then approves the new deal. There is no appetite in Brussels for renegotiation. Even if this happens, it requires more time, a further debate in the UK and approval by the EU Parliament. All takes time, and the clock is ticking towards the March 29th deadline.

And that is the optimistic scenario.

Labour Leader Jeremy Corbyn wants a general election. Members of Parliament have no appetite to risking their jobs. In case the country goes to the polls, it requires a pause for a campaign, a vote in the new parliament, and a vote in the European one. With 78 days left, it is hard to see everything happening.

Another scenario is a second Brexit referendum. It is unclear what the question will be: the deal or a hard Brexit? The deal or no Brexit? All three options? Debating the question, the time for the campaign, and processing the outcome will all take a long time. 

At this juncture, and despite the government's denials, a delay of Brexit makes sense. It would infuriate hard-Brexiteers but provide time to try to untangle the differences within both major parties which are torn on the issue.

GBP/USD reaction - higher levels to watch

How would markets react? On the one hand, they dislike uncertainty, but they also hate Brexit. Any extra time and the chance that Brexit will be canceled altogether will spark enthusiasm in markets.

So far, GBP/USD is somewhat stuck in a range, exhausted from the incessant flow of Brexit headlines. But pushing back Brexit is already considerable news.

The pound could jump. Is there a buying opportunity now? 

Initial resistance awaits at the late-December high of 1.2820. It is followed by the late-November peak of 1.2850. Close by, the mid-November peak of 1.28990 awaits. 1.2980 was a swing high around the same period and 1.2960 served as support in early November. 

Above 1.3000, we find 1.3015 that supported the pair in early October and 1.3070 that was a swing high in early November.  1.3170 was a peak in early November and 1.3260 capped cable in mid-October. 

The round number of 1.3300 was a high point in September for the next line we have to go back to July when GBP/USD hit 1.3370. Further above, 1.3470 dates back to June and 1.3615 to May.

Can cable go even higher? That would probably necessitate an outright cancelation of Brexit.

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