EU Backs PM's Deal
Three years and two Prime Ministers after the UK electorate narrowly voted in favour of leaving the European Union, the UK government is now on the verge of finally agreeing a Brexit deal. The Brexit deal offered to the EU by Boris Johnson this week was officially approved by EU leaders at a special summit held yesterday. The approval of Johnson’s plan marks a significant lurch towards delivering Brexit and is something of a miracle given that just last week reports were suggesting that a deal could not be done, following a frank discussion between Johnson and German Chancellor Angela Merkel.
The sense of relief in the markets is visible today with the British Pound sitting at levels not seen since May. The uncertainty created by the confusion and lack of clarity over recent Brexit negotiations has taken its toll on the Pound though we have seen a sizeable recovery in recent days on hopes of a deal.
With Johnson now holding EU approval for his deal, the final piece of the puzzle is to secure parliamentary backing for the deal by end of play tomorrow. The October 19th deadline for a deal is set out by the Benn Bill, a piece of legislation recently passed by MPs, which requires the PM to request an extension to Article 50 if parliament cannot agree a deal by this point.
However, the situation has become more complex over the last 24 hours with Jean Claude Juncker, president of the European Council cautioning the UK that there will be no further extensions to Brexit. In essence, saying that the parliamentary vote tomorrow will not be on whether to approve Johnson’s deal or ask for an extension, it will be on whether to leave the EU with a deal, or leave without.
This is a major threat to Johnson’s deal, as the Conservative’s partners in government, the DUP, has said that it will not back Johnson’s deal. As such, Johnson will need to rely on support from across the political spectrum in order to pass his deal, a goal which has so far proven elusive. Jeremy Corbyn, leader of the opposition party, has echoed the sentiments of the DUP and said that he will not be voting for the deal, nor should his MPs. There is
In yet a further twist to the tale, EU leaders have publicly distanced themselves from Juncker’s comments saying that a further extension could be possible is a deal is not agreed. Donald Tusk told reporters “if there is a request for an extension, I will consult member states to see how they react.”
Parliamentary Vote Next
So, with the DUP and Labour openly opposing the deal, is it possible that Johnsons can still get it through parliament?
The numbers are certainly against him. Johnsons had been pitching the vote as a choice between a deal and a no-deal Brexit. However, following further clarification from EU leaders, it seems an extension is still on the table.
The PM will be focusing his efforts on persuading Tory Brexiteers (those who have so far been against a deal) as well as the 21 MPs he ejected from the conservative party last month for their support of the Benn Bill. Equally, Johnsons will be targeting MPs from across the political divide who have shown their support for a deal over a no-deal Brexit. Given the level of opposition which Johnson faces and with the EU refusing to rule out any further extension, there is a high risk that Johnson’s deal fails to pass tomorrow’s vote which means that Brexit uncertainty would continue again next week.
Technical & Trade Views
GBPJPY (bullish, above 135)
GBPJPY From a technical and trade perspective. Price still moving higher within the expanding channel. Longer-term VWAP has flipped positive here, suggesting continued upside. However, momentum studies flag risk of correction. The monthly pivot and previous highs at 135 could offer support on any more lower, keeping the bullish bias in play longer term. Worth noting heavy GBP risk over the weekend and potential for gaps at the open next week.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!