GBP/USD: Profit taking ensued during PM May's Plan B presentation to Parliament

GBP/USD's fate now depends on how the EU will respond to her fresh proposals when she heads to Brussels, in due course, with a revised approach to the 'backstop' which is The Commons are currently divided upon.

For the meantime, the markets are leaning more on the 'soft outcome' side, despite the risks of a hard Brexit as the Prime Minister takes negotiations to the EU in the eleventh hour as the UK heads to the 29th March leave date, (67 days to go), without a deal that the UK's parliament cannot agree upon. "Brexit developments are topics of mind in this regard, though we continue to think that downside risks are declining for GBP. That's not to say that we have certainty on the possible range of scenarios but rather the balance of risks favours a "softer" outcome. A bumpy ride leaves us preferring options to spot with the aim of reducing the downside skew priced into vol markets," analysts at TD Securities explained. 

The road map forward from here:

• PM May laid out Plan B, and the main takeaways for a near-term road map at these crossroads come as follows:
• There will be no revoking Article 50 as the party has a duty to implement Brexit referendum result - (GBP bearish).
• Another vote on Brexit would undermine faith in democracy - (GBP bearish).
• May doesn't believe there is the majority in parliament for a 2nd referendum - (GBP bearish).
• U.K. must fully respect the Belfast agreement - (GBP neutral). 
• Only two ways to rule out a No Deal scenario, deal or no deal - (GBP bearish). 
• Will discuss backstop this week with DUP - (GBP bullish - towards soft Brexit). 
• Will seek input from voices outside government in the 2nd phase of Brexit talk - (GBP bullish). 
• Offers guarantee on workers rights post Brexit - (GBP bullish).
• Guarantees rights of EU citizens in the UK even in no-deal and will waive the application fee for EU citizens to register in Britain - (GBP bullish).
• Will meet with members of all sides of Parliament on Brexit - (GBP bullish). 

At the time of writing Parliament continues to muddle through options, but as May seeks to leave the EU with a deal and a soft Brexit, the markets are taking up more of the positives than the negatives at this stage, despite there being no progress and The House rejecting May's deal. What markets are pricing in is a white flag which is code language for a request from the UK to the EU for extra time, extending Article 50 to give more time for negotiations to take place until a soft Brexit deal can be agreed in UK Parliament (GBP bullish). 

GBP/USD levels

• Support levels: 1.2840 1.2800 1.2760
• Resistance levels: 1.2930 1.2975 1.3043

Valeria Bednarik, Chief Analyst at FXStreet, notes that technically, the daily chart shows that the pair holds well above a firmly bullish 20 SMA, this last some 150 pips below the current level, while the 200 EMA gains bearish strength around 1.3035:

"Technical indicators in the mentioned chart have eased strongly after nearing overbought territory, heading south within positive levels, signalling the decline may continue but without confirming a bearish extension throughout the day. Shorter term, and according to the 4 hours chart, the risk has skewed to the downside, as the pair broke and settled below its 20 SMA, which lost upward strength, while technical indicators retreated all the way down to their midlines."