The EU has granted an extension to 31 October and some EU leaders already appear open to the possibility of a further extension if needed. Near term, we monitor the response in the UK. The Conservative backbenchers want to get rid of Theresa May. Look out for local elections on 2 May and European elections on 23 May. Mood for snap election is low. No signs of imminent breakthrough in cross-party talks. We expect EUR/GBP will remain in the 0.85-0.87 range for now. Markets likely to focus on other things than Brexit now. Extension not only for the better from an economic perspective.
Brexit or how to deliver the undeliverable
The EU Summit is critical, and GBP/USD is set to rock. A "flextenion" of up to 12 months is the most probable outcome and could lead to a rally. A euro-fudge with a short extension to June 30th is another potential option, and GBP/USD could cautiously advance on it. A hard-Brexit or a "Brexident" could be devastating but has a low probability.
Brexit has been fraught with problems from the get-go. The referendum was ill-expressed, poorly if not disingenuously argued, and failed to specify a threshold of victory needed to overturn the treaty. The Conservatives and Labour colluded to agree to enforce the non-binding resolution. There seemed to be little discussion of the implications of other UK obligations, such as the Good Friday Agreement. Article 50 was arguably triggered prematurely. The political elite, barely recovering from the loss of gravitas over the Great Financial Crisis and the nationalization of the banks, has shown itself to be both petty and incompetent.