Sterling unconvinced by Johnson’s certainty

Boris Johnson won a court case in Scotland…not that he needed to; according to him

Boris Johnson won a court case in Scotland…not that he needed to; according to him

Brexit is on course for 31st October, the only independent variable being whether or not the EU will agree a deal beforehand, says the prime minister. If only market participants could be as certain. The government has won a case in a Scottish court that could have tied Boris Johnson’s hands even more tightly to the Benn Act—the law that aims to prevent Britain from crashing out of the EU. The Judge noted “unequivocal assurances” that the government would comply with the law. The QC for campaigners who brought the case said there would be an appeal. So another possible avenue of clarity, however tenuous, stays befuddled.

Johnson himself is a source of abundant uncertainty, continuing to contradict the government and—to an extent—himself. The government has repeatedly said it will obey the law requiring the request of a Brexit delay if no deal is agreed as the 31st October deadline nears. On Friday, government lawyers confirmed that any request letter would be sent by 19th October. But the latest in a string of anonymous briefings said Johnson’s determination to leave on that date, deal or no deal, cannot be thwarted.

These numerous—apparently concerted—government echoes of Johnson’s stance come alongside a growing tide of litigation including the hearing Downing Street won today. Another case that could force the government to send the letter seeking an extension even if Johnson refuses to, is due to be heard on Tuesday. Meanwhile, the prime minister is reportedly continuing a round robin of phone calls to persuade EU leaders whilst Britain’s lead negotiator pushes the case in Brussels.

The message from there is now that the government has till Friday to move towards a deal that the EU can accept. Pragmatic politics thereby look to be among the government’s last remaining gambits, particularly as opposition parties continue to block an early general election ‘escape route’.

Against this backdrop, options trades expiring around the time of the EU’s forthcoming summit suggest speculators and hedgers see heightened risks rising further. Some complex trades covering 17th-18th October are now seeing the highest demand since after the 2016 referendum. Despite this, irresolute sterling trends are keeping the pound well above September lows. With 24 days to go, this may turn out to be madness, in hindsight.

Key Brexit dates ahead

Chart thoughts

Sterling strength ought to be magnified within the risk-sensitive GBP/JPY pair, but even here, evidence that buyers are anywhere near in control is lacking. Yes, the pair shows signs of completing the consolidation of the up leg that peaked in the high ¥135s (confirming 24th July’s whipsaw high as the region of strong resistance). But better confirmation is required than what is beginning to look like a false break out of the wedge that developed since 18th, 20th and 21st September tops. Sterling can pull away here, though would need to surpass ¥132 and thereabouts, as tagged twice last month as support. That level could now pose resistance. Short-term trends aren’t supportive. They’re pointing lower, including the 20-interval moving average in the chart below. The pound trades above it, but can be expected to revert below, per recent pattern. All the above said, there’s little doubt that GBP/JPY has established decent support in the current region, chiefly from aggressive defence of ¥130/131 last month, with corroboration just south of ¥131 at Sunday’s open. But this month’s base from the definitive February to August downtrend lies around ¥126.6-¥126.7. It make sense to think of a failure to withstand downward pressures on current levels as pointing to a move down to last month’s base.

GBP/JPY – Two-hourly [07/10/2019 17:01:00]


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