GBP/USD: It's "keep calm and carry on" ahead of PM May's no confidence vote
- GBP/USD is sideways following a tremendous, albeit, suspect, comeback rally following Prime Minister May's impressive defeating Brexit deal vote which triggered the opposition party to table a no-confidence vote.
- Markets are now waiting for the outcome of the UK Parliament's no-confidence vote that is due at 1900GMT.
GBP/USD is currently trading between 1.2841 and 1.2895, in a sideways chop as traders soak up the market's rather atypical reaction to what is actually still a very poor position for UK business, confidence and the economy which also leaves the BoE on the sidelines for the foreseeable future.
The vote was hugely against PM May's Brexit plan. The humiliating defeat takes her back to the drawing board. However, first of all, before she can inact plan B, whatever that might be, the Prime Minister has to get through a no-confidence motion tabled by the Labour Party opposition leader Corbyn. Corbyn is attacking what he has called, "a zombie government" that "cannot govern" while calling for a general election.
Opening the debate on a no-confidence motion, Mr Corbyn said the government "should do the right thing and resign" after Tuesday night's record-breaking defeat on its Brexit legislation. The prime minister proclaimed that a general election was "simply not in the national interest".
EU has given no indication they were willing to make concessions, but 'keep calm and carry on'
The price action in sterling is hard to reconcile considering the dangers that the UK businesses and economy are facing. UK confidence has been unrooted, yet markets are taking the circumstances in its stride, speculating that all will be ok. The uncertainty alone which has previously sent sterling down the plug hole seems to have run its course concerning how much further it can damage the pound. Instead 'keep calm and carry on," is echoed around the dealing rooms, despite that the EU has given no indication they were willing to make concessions.
As such, without any concessions, this increases the chances of a no-deal Brexit, leaving PM May, Brexit, and for that matter, sterling, in a rather precarious position and regardless of whether, as expected, May wins the vote of no confidence.
Cable has completed a falling wedge reversal pattern and targets the 200-D SMA at 1.3112. "Only a rise above the July, September and October highs at 1.3258/1.3363 would put the June high at 1.3473 on the cards," analysts at Commerzbank argued who suggest below 1.2444/27 will target the 78.6% retracement at 1.2109.
If May wins the vote, this will underpin hopes that an eventual passage is still possible and could see spot continue its northerly trajectory rally towards the 38.2% Fibo retracement of the 2018 decline target between there, the 1.3270s, and 1.32 the figure. An extension to 1.33 would complete a full reversal os the Oct 2018 decline to date. However, given the fragility of confidence in May's ability and poor track record of negotiating with a stubborn EU that have shown no signs of awarding concessions to the agreed deal, between R2 located at 1.3065 and the 74.6% Fibo retracement of the Oct decline just below 1.31 the figure could be a more reasonable target area. Having said that, the market might be more inclined to fade any rallies, depending on the outcome, and we may see sterling sideways as the markets look for a more definitive progression with Brexit at this juncture. That would leave cable oscillating within a familiar, yet, unpredictable ranges.