Sterling set to shine if the opposition maintains its path

September 4, 2019 Off By admin-445
  • GBP/USD may surge if UK opposition parties win another victory.
  • Sequencing of bills is critical to the next moves.
  • Wednesday’s four-hour chart shows a critical “do or die” resistance line.
  • Boris Johnson’s first encounter with parliament has ended with a humiliating loss – but  has finally been able to win. The new prime minister has lost control of the House’s agenda – and his party. In a 328 to 301 vote, MPs approved a motion to seize control of the agenda in order to force the government to avert a no-deal Brexit.
    Sterling – which hit the lowest levels since 2016 early on Tuesday – was on the rise as it became clear that the opposition was on course to victory. And the pound has been extending its gains after the vote as well.
    Former PM Theresa May suffered rebellions from Brexiteers – including Johnson – and now came the Remainers’ revenge. No less than 21 Conservative MPs – including former senior ministers – voted against the government. They were consequently expelled from the party. Even if they fight to remain Tories, Johnson has lost his majority in parliament after his colleague Phillip Lee jumped ship and joined the staunchly pro-Remain Liberal Democrats.
    Sequencing matters for sterling
    Another tumultuous day awaits traders in parliament as MPs will now debate the bill. The concise law forces the government to seek a three-month extension to Article 50 if parliament does not agree on a deal or leaving without an agreement by October 19.
    The “rebel alliance” faces another law tabled by the government. The embattled PM responded to the loss by calling for a general election – as expected. He wants Brits to go to the polls on October 15 – just 16 days ahead of Brexit.
    While opposition parties said they are willing to go to the country, they insist that their bill must be passed first. They pledged to vote against an election if the government brings its bill before theirs. According to the law, the government can change the election date after it has passed. By moving it to November, Johnson will be able to force a hard Brexit – and MPs do not trust the PM.
    This sequencing is critical to the next move in the pound. If the rebels’ bill passes the Hosue of Commons, it will then need to be approved by the House of Lords and receive Royal Ascent. Only then, the opposition is willing to vote for an election.
    If this plan goes forward, GBP/USD may shoot higher. If it is intercepted, the pound may plunge.
    While deliberations in Westminster are set to dominate, other events may also move the pound. Markit’s Purchasing Manager’s Index for the services is expected to show that the UK’s largest sector is still growing – a score above 50. However, data for the construction and manufacturing sectors disappointed by falling deeper below 50 – reflecting contraction and a chance of recession.
    Mark Carney, Governor of the , will appear before a parliamentary committee later today to testify on the recent Quarterly Inflation Report. Carney and his colleagues will likely repeat their plain message – everything depends on Brexit.
    The US dollar has been under pressure after US Manufacturing PMI missed with 49.1 points – contracting. Fears of a US recession are rising. officials have been sending mixed messages.
    Overall,  developments are left, right, and center.
    GBP/USD Technical Analysis

    The Relative Strength Index (RSI) on the four-hour  has risen above 30 – not reflecting oversold conditions anymore.
    Downside momentum is waning, and GBP/USD now faces fierce resistance 1.2155. This level is the 100 Simple Moving Average, and it was also a swing low in late August. Further up, 1.2195 provided support earlier in August and is also where the 200 SMA meets the price. The next cap is 1.2235, which held GBP/USD down on Friday. It is followed by 1.2270 and 1.2310.
    Support awaits at 1.2110, which provided support in late August. Lower, 1.2065 was a swing low in mid-August. It is followed by 1.2040, 1.2015, 1.1985, and 1.1958 – the fresh 2019 low.