Brexit: FX market outlook & strategy looks to 0.8965 or 0.8700 - TDS

Further to two previous flashes, titled, Brexit: the 15 amendments in brief - TDS and Brexit: likelihood of key amendments passing - TDS, analysts at TD Securities offered their market outlook & strategy over these crucial Brexit events.

Key Quotes:

"The House of Commons' Brexit votes will attract a considerable amount of investor attention this week. They will have to compete, however, with a host of other drivers as markets are facing a particularly dense data and event risk calendar – both for the UK and more broadly. Against this backdrop, we think UK financial markets could remain choppy overall - both in rates and FX - but we are inclined to downplay this week's votes as likely to produce a sustained and meaning change in trend."

"Here, we think next week's BoE meeting (21 June) looms larger on the horizon."

FX Markets: 

"At the risk of some oversimplification, we think the more amendments that pass the better the outcome for sterling. We are cautious in taking this too far, however, as many of the most contentious issues face an uphill battle in the Commons and the end result may be more confusion than clarity. Indeed, "too much" success in defeating the government could rapidly morph into a GBP-negative as markets may begin to question the viability of the current government and look ahead to risks of its imminent demise."

"Any GBP upside seen on hopes of a softer Brexit could quickly unwind if concerns over the UK's political stability come to the fore. At the other end of the spectrum, a comprehensive sweep by the government reverts market expectations back to their status quo. With this in mind, we are generally inclined to fade any sharp move that may emerge as a result of these votes - particularly in EURGBP."

"Cable looks likely to remain mostly a function of the USD leg and global developments, suggesting sterling's cross vs the EUR is the better barometer for the currency. Here, we note that today's weak set of UK macro data has see the cross move back toward the 0.8850 pivot, a level that closely corresponds with the midpoint of the trading range in place since last September."

"A full slate of defeated amendments could see EUR/GBP grind up toward resistance around 0.8965, but we are reluctant to chase a move higher. Correspondingly, if hopes for a softer Brexit platform were confirmed we could see a test of support around 0.8700, but we think a fresh catalyst would need to emerge to see a sustained push lower."