GBP/USD: Has a fading opportunity arisen or better just stay with the soft Brexit trade?

• GBP/USD has been better bid since the meaningful vote on speculation that Brexit will all come good in the end, or not at all. 
• The day's until the lawmaker's decision on a proposal to push back Article 50, led by Tory MP Boles and Labour’s Cooper, are going to be touch and go.
• Chips are down for a soft Brexit, an extension of Article 50, a second referendum and BoE hiking rates on a positive Brexit outcome for the UK economy. 

The bears have started to come to terms with the fact that the market is of the mind that Parliament will not allow a hard Brexit to take place. It is apparent that MPs will force PM May to extend Article 50 until the impasse can be resolved and a soft Brexit deal that can be approved in The Commons and finally applied.

Hence, when we see strong UK data, it raises the odds of a BoE rate hike once the Brexit dust has settled which would take an undervalued pound sterling much higher and the early birds have been out catching all the worms ever since the meaningful vote. 

Indeed, our own Senior analyst at FXStreet, Joseph Trevisani, wrote in A contrarian view on the Brexit vote in Commons and the pound ahead of the vote:

"If the Brexit deal fails in Parliament on Tuesday the Remain side will see a leap in hope that will support the sterling. If Brexit passes the relative financial and economic stability will also boost the pound."

In a report from Rabobank today, analysts explained that, "GBP has taken some comfort from news that a Brexit delay bill would likely be approved by lawmakers.  This has been proposed by a cross-party group of MPs and would extend Article 50 if a deal was not in place by the end of February.  While this would remove the prospect of a hard Brexit, plenty of political uncertainty remains in the UK and this suggests that the coming week or so could be another rocky ride for market sentiment. ”

The report goes on to say, "If it is approved by lawmakers on January 29th, a proposal led by Tory MP Boles and Labour’s Cooper would force PM May to extend Article 50 if she was unsuccessful in finding sufficient parliamentary backing for her Plan B by the end of the next month.  May has been warned that is she was to attempt to block her ministers from supporting this bill, several could resign. From the perspective of GBP investors, this would remove the most bearish scenario from the table – at least for now.  However, it doesn’t solve the issue of finding a compromise Brexit deal that would provide businesses with the certainty that they need."

BoE trade in play on strong data from the UK; (Number of people in work rose by 141,000 over the September-November period, relative to the previous three months):

Meanwhile, from the data front, we had a highly impressive jobs report for November. Having been virtually flat over the course of last summer, employment growth has shown greater momentum over the past couple of months and the data will arguably be welcomed by the BoE against a backdrop of a rather bleak economic performance otherwise, which makes for a conundrum for the BoE considering inflationary pressures andBrexit risks when taking in to account the wages growth. 

"Regular pay growth matched last month’s post-crisis high of 3.3%. This again emphasises that firms are having to lift wages increasingly rapidly to retain and attract talent," analysts at ING Bank wrote. 

However, selling opportunities might arise at this juncture, considering there is still plenty of risk out there surrounding Brexit; "UK wage growth continues to be a relative bright spot in an otherwise lacklustre economic story, but the increasing uncertainty surrounding Brexit means the Bank of England is unlikely to hike rates any time soon," analysts at ING Bank argued. 

All in all, by the end of January 29^th, it seems possible that MPs will have removed the risk of a hard Brexit in March which is positive news for the pound, but at this juncture, there is still plenty of room for fading considering wider market risks.

Sino/US trade dispute at core of market risk

Meanwhile, markets are on alert considering the global growth story and US government shutdown. US traders are back at their desks and US futures were setting the trading day up for a risk-off session. We have seen some downside in US stocks and a bid in the yen, but sterling is taking the top spot, (GBP/JPY rallied to 141.54). Stocks have tried to stablise but still remain heavy and any more downside in the yen could see cable off a touch with GBP/JPY stalling at this juncture, (long candlestick shadows on bullish attempts meeting supply). 

At the core of market risk and indeed conversations in Davos this week is the Sino/US trade dispute.  An article on CNBC reads, "In some 25 years of attending Davos, first with the Wall Street Journal and now at the Atlantic Council, I've never sensed such concern among its attendees about emerging risk: Political, economic, societal and climate. Most crucially, worry is growing over how emerging technologies – and the Sino-U.S. struggle for their commanding heights – will define or disrupt the industries and countries they inhabit," Frederick Kempe, journalist and president & CEO of the Atlantic Council, one of the United States' most influential think tanks on global affairs, said. 

GBP/USD levels

GBP/JPY bears will aim for the pivot of 141.19 if risk deteriorates. Risk off flows based on Sino/US noise has been supportive of the greenback. If pressured from both sides, GBP/USD could well have met a high at today's run to 1.2969. Bears would look to the 1.2927 last bullish fractal (support and confluence with prior R1 1.2923). The daily pivot is located at 1.2876. 1.2829 is yesterday's swing low. 

Below 1.2444/25 targets the 78.6% retracement at 1.2109

"GBP/USD is easing back from the 1.3000 level and looks set to consolidate near term, we have conflicting intraday Elliott wave count, but for now would allow for slippage to the 1.2775 55 day ma," analysts at Commerzbank wrote, who are actually bullish overall, adding that "the market recently reversed from a 5 month support line. We regard the recent move to 1.2444, charted in January, as the end of the down move and we look for gains to the 200-day ma at 1.3088. Dips will find initial support at the 55-day ma at 1.2775 and 1.2669/62, the August low. Only below 1.2444/25 targets the 78.6% retracement at 1.2109.
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