EUR/GBP: If the ECB does not give markets some excitement, Her Majesty, The Queen of England might

• EUR/GBP has been bleeding due to Brexit optimism, although sterling remains in no man's land. 
• Market regards sterling as undervalued, 15% upside to go vs the greenback.
• EUR/GBP near term risk lies with ECB and 29th Jan UK Parliament time-line event.

EUR/GBP has extended the early Dec 2018 bearish reversal and has surpassed the 76.4% Fibo retracement Nov rally, testing daily S2 with a low of 0.8698. The move to the downside is driven on Brexit sentiment, although, if it wasn't for a switch up in broader market risk appetite returning, supporting a bid in EUR/USD, we could well be seeing the makings of a 100% retracement of the December November 2018 rally. 

• GBP/USD: Shoots up to test 200-D SMA; markets betting on a return to fair value and BoE rate hikes no matter what

Markets are positioning for an extension of Article 50 and a softer Brexit, opting to ignore the risks of a disorderly no-deal Brexit while rebel conservative MPs and Labour seek to have a Brexit delay bill to be approved by lawmakers if a deal was not in place by the end of February.  While this would remove the prospect of a hard Brexit for now, according to Liam Fox, the Brexiter international trade secretary, it doesn't remove the risk altogether.  Political uncertainty will kick in again at some stage, capping the rally in sterling until a deal is other done with the EU, (in or out of the EU), or the UK leaves without one - hard Brexit. 

"If other MPs cannot coalesce behind an alternative option, then even an extension of the Article 50 process would be insufficient to avoid an eventual no-deal exit. Moreover, as time passes and both the government and businesses continue with their no-deal preparations, the ultimate net cost of a no-deal exit would gradually decline, potentially making it more likely further down the line," analysts at Standard Chartered explained. 

However,  last night there was good news for those who want to amend the government motion to force the government to rule out a no-deal Brexit. As an article in today's Guardian outlines, there are various amendments on the order paper designed to do this.

"One of the main ones has been tabled by Labour’s Yvette Cooper," the article explained. "It would create time for MPs to debate her bill saying Theresa May would have to seek an extension of Article 50 until the end of the year if MPs have not approved a Brexit deal by 26 February. On Newsnight, last night John McDonnell, the shadow chancellor, all but announced that Labour would support the Cooper amendment. He said it was a “sensible proposal” and that it was “increasingly likely” that Labour would vote for it. Assuming the amendment gets called, given the number of rebel Tories in favour, this means it is highly likely to pass."

However, can a no deal Brexit really be blocked by parliament?

Philip Hammond, the chancellor, told business leaders after MPs voted down Theresa May’s deal that a no-deal Brexit would be blocked .“I can simply as a parliamentarian say it is clear to me there is a large majority in the Commons that is opposed to no deal in any circumstances,” Hammond said.

However, what would be the other solution if Article 50 is not revoked, or a deal is done, as PM May has repeatedly asked time and time again?

"No-deal Brexit can only be stopped by MPs backing another solution", says EU’s chief negotiator Michel Barnier

Barnier explained that a no-deal Brexit could only be stopped if MPs come together around “a positive majority for another solution”. 

Queen of England to grace The Commons with her presence?

“I hope it will not be necessary for Her Majesty’s stay at Sandringham to be interrupted by her in person having to prorogue Parliament,” 

said Mr Rees-Mogg when explaining to a Bruges Group event in Westminster that historic laws allow the monarch to arrive in parliament to halt proceedings in the Commons “straight away”

Anti-EU Tory, Mr Rees-Mogg warned that for the delaying of Article 50 plot to succeed would require the Government to have “connived” by allowing the relevant bill to pass. Mogg suggested that the government could prevent an extension by shutting down Parliament before MPs have a chance to vote on the plan, under a procedure known as prorogation. He told a Bruges Group event in Westminster that historic laws allow the monarch to arrive in parliament to halt proceedings in the Commons “straight away”.  “If the Government allows no-deal to be taken off the table that would be a failure of that Government and then it would be the job of backbench MPs to hold the Government to account.”

The saga continues...but the 29th Jan should make for an interesting day in sterling markets. 

Meanwhile, we have the ECB on the agenda as well, but, if not changes to rates of guidance are made, it may turn out to be such a priority event in markets, according to analysts at TD Securities: "We think they will look through recent data disappointments and leave the balance of risks unchanged. The overall tone of the opening statement & presser should, therefore, sound cautious but constructive. The dovish risks we highlight are unlikely to materialize before mid-year."

EUR/GBP levels

Analysts at Commerzbank explained that attention is back to the 78.6% retracement seen as the last defence for the 0.8655 November low. "Above the 200-day ma lies the 55-day ma at 0.8909 and this together with the October .8941 high are expected to contain the topside."