Johnson Defeated Over Brexit Bill
The UK PM fought desperately to get his Brexit deal through parliament.
However, in the end, his efforts failed. While MPs did ultimately back the PM’s deal, parliament refused to support rushing the deal through in time to deliver Brexit by the October 31st deadline which was in place at the time.
Following his defeat, Johnson deferred to the procedure outlined in the recently passed Benn Bill and requested a 3 month Brexit extension from the EU.
EU Grants UK January 31st, 2020 Brexit “Flextension”
The EU was in no rush to agree to a Brexit deadline. Initial comments from EC president Donald Tusk cast doubt over whether the EU would grant the UK a further Brexit extension.
The endless deliberations and negotiations have irritated EU leaders and divided opinions. After taking a week to agree to grant the UK an extension, the EU took an extra few days before announcing the deadline with which it was comfortable.
After a tense period for both the markets and UK politicians, the EU agreed to the UK’s 3 month Brexit extension request. Additionally, the EU noted that it has granted the UK a “flextension”. This means that if parliament can agree on a deal ahead of the deadline, the UK will be allowed to leave sooner.
UK PM Calls December Elections
News that the EU had granted the UK’s extension request was initially received as GBP positive.
MPs had backed Johnson’s deal but were against the initial timeline. Therefore, the new deadline would grant Johnsons the chance to garner proper support to implement his deal.
However, the picture has somewhat changed following the calling of general elections in December. Following parliamentary approval, the UK will now vote on the next government on December 12th.
Johnsons Pushing For Pre-Christmas Brexit
Johnson remains adamant that his deal is the best outcome. In fact, he has said that should the Conservative party take a majority and lead government again, he will press ahead with his deal to complete Brexit by Christmas.
The opposition party, Labour, has said that it will support a second referendum should it take power. Corbyn would like to ask the country whether it would rather support the current Brexit deal on offer or remain in the EU.
Taking a slightly more hard-line stance, the Liberal Democrats plan to revoke Article 50 and cancel Brexit if they win.
Labour & Conservative Close in Polls
Initial polling results from ORB International show that the race between the Conservative party and the Labour party is a lot closer than many people think. The Tories are at 36% and Labour is at 28%.
Given the major voting upsets we have seen in recent years, such a narrow margin so early on is a major red flag for Johnson.
There has been a huge mobilization of support behind the call for a second referendum. This could spill over into a win for Labour. However, given the massive division on this issue, it is difficult to see any party making a clean sweep. Another coalition government seems the most likely result unless things shift materially.
GBP Boosted By Brexit Delay
The market has so far taken the news of a further Brexit delay as a positive.
Over October, GBPUSD enjoyed its strongest month since January 2018 as the market paired its short positions. This latest three-month delay means that, once again, the UK has avoided the potential catastrophe of a no-deal Brexit. And most importantly, the chances of the UK leaving with a deal have increased, keeping GBP supported.
With the general elections on the horizon, there is also the outside chance that we could see Brexit canceled altogether. More specifically, this would be the case if we saw a Labour- Liberal Democrat government formed.
Looking at GBPUSD on the monthly chart, you can see that price has formed a large double bottom with the post-Brexit referendum closing at a low of 1.2253. Price has rallied firmly off the level, with the RSI indicator showing bullish divergence.
The next area to watch will be the retest of the long term bearish trend line from 2014 highs. If price breaks back above here, the focus will shift to the 1.4280 structural resistance.
Coming down onto the daily chart, you can see the extent of the recent rally. Price is close to testing the long term bearish trend line now, where we also have decent structural resistance between 1.3291 -1.3368. To the downside, any retest of the 1.2498 level should find support and while above here, focus is on further upside.