16.01.201911:47 Forex Analysis & Reviews: Brexit: execution cannot be pardoned

The British currency showed strong volatility yesterday, reacting to events in the British Parliament. Contrary to many forecasts, the pound did not collapse in response to the failed vote on the draft transaction. On the contrary, it strengthened its position and continues to gain momentum throughout the market. Such behavior of the currency suggests that trading in a pair of GBP / USD, like any other cross-pair with the participation of the British, is an extremely risky exercise since it is almost impossible to predict the scenario of developments and (especially) the reaction of traders to these events.

According to the "standard" logic of things, yesterday the pound had to go down a few pieces. After all, only 202 deputies supported the Brexit deal, while more than four hundred were against it. In other words, the agreement was not supported either by the Labor Party or by many conservatives, including representatives of the European Study Group (the day before there were rumors about a change in their views). Such a devastating score says a lot. Firstly, the May team was unable to convince their fellow European skeptics, and secondly, the number of opponents of the premier remains consistently high. Both factors were supposed to pull a pair of GBP / USD to the 25th figure, but subsequent events changed the mood of the traders.

This is a vote of no confidence in the current government. This issue will be considered tonight within the walls of the House of Commons. This is not to say that such a scenario came as a surprise to traders. Just last Sunday, the Labor leader announced the implementation of these intentions. Therefore, when Jeremy Corbyn put this question on the agenda, the pound reacted quite calmly and without unnecessary emotions. But when preliminary political alignments in the ranks of the British parliament became known, the British currency began to rise in price, more than returning the positions lost yesterday. It turned out that it is impossible to put an equal sign between the number of those who voted "against" the transaction with the number of deputies who are ready to support a vote of no confidence in the government of Theresa May.

In other words, despite the fact that many conservatives are dissatisfied with the proposed deal, they are not ready to change power, much less to give Labor to the Labor Party "on a silver platter" the premiership. By the way, and not only conservatives, representatives of the Democratic Unionist Party, who are temporary allies of Tory in parliament (and who provide a parliamentary majority), have already declared their support for the British prime minister. Such a turn of the plot reduces the likelihood of the prime minister's resignation, and most importantly, reduces the likelihood of a "hard" Brexit.

If the parliament announces a confidence vote May by voting against the initiative of the Labor Party tonight, the government will have to present a so-called "plan B" this Friday, a new version of the deal. According to the Prime Minister, after today's vote (of which she has no doubt about the successful outcome), the Cabinet will hold consultations with parliamentarians, finding out what needs to be done to get support for the agreement. She will then travel to Brussels to voice these proposals to the European Union.

According to the British press, the second vote could take place on January 21st. But if the deputies do not support the "updated" version of the deal (or Brussels refuses May to correct the agreement), then in this case, they will most likely postpone the Brexit date to the end of summer or early September, after which they will take the negotiation process into their own hands. Experts believe that next week, the parliament will try to take control over Brexit in order to reach a compromise agreement with Brussels. The positive aspects of this scenario are obvious. The parliamentarians do not agree to the "hard" Brexit, wanting to find a compromise with Europe. The negative side of the issue is the position of Brussels itself, whose representatives have repeatedly stated that they will not reconsider the agreement reached.

However, it is too early to talk about this. The British currency has yet to "survive" two events that can determine the vector GBP / USD in the long run. The first is the evening vote on a vote of no confidence in the government, the second is subsequent consultations with May deputies of the British parliament and representatives of the EU. The second point is key since at this stage there is still a chance of reaching a compromise. In this case, on January 21, the British can still approve the deal. In the meantime, the current situation can be described with the catchphrase "you can't pardon the execution". In our case, the decisive comma can be set in the coming days.

In general, the fundamental picture for the pair pound/dollar remains uncertain, so trading this pair is still risky. If there are negative signals coming from Brussels regarding the prospects for additional negotiations, the British currency will be under strong pressure, and GBP / USD, respectively, will return at least to the 26th figure.