- Intraday Comment
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24.01.2017, 2pm
Intraday Comment • The UK Supreme Court has decided via an 8-3 vote that the government cannot trigger Article 50 of the Lisbon treaty without parliamentary approval. The ruling implies that Theresa May’s government cannot begin formal negotiations with the EU until lawmakers give their consent that Brexit should happen. Parliament is highly unlikely to veto Brexit, as MPs from both major parties said they respect the will of the people. Nonetheless, the fact that there will be some Parliamentary oversight of the exit process reduces somewhat the likelihood that the UK ends up with a “hard Brexit”, in our view. Cable popped up on the announcement, but quickly reversed its gains to trade even lower in the following minutes, quite possibly due to a side-note in the Court’s verdict that regional assemblies, such as Scotland and Northern Ireland, do not have to approve of Brexit separately. This is quite important because if, let’s say, Scotland had the ability to veto Brexit in its own parliament, it may actually have done so, considering that the Scottish people overwhelmingly voted to remain in the EU. Now, the attention of GBP traders turns to the Bank of England policy decision and the release of the quarterly Inflation Report next week, for any fresh signals from policymakers with regards to their view for inflation, which has accelerated notably in recent months.
• EUR/GBP traded in a volatile manner on the UK Supreme Court’s decision, but in the aftermath it stabilized within the range between the 0.8580 (S1) support and the resistance of 0.8620 (R1). Following the break below the upside support line taken from the low of the 3rd of January, the rate has been printing lower peaks and lower troughs below the downtrend line drawn from the peak of the 16th of January. As a result, we would consider the short-term outlook to be negative. Nevertheless, we prefer to wait for a dip below the 0.8580 (S1) barrier, which coincides with the 50% retracement level of the 5th of December – 16th of January advance, before we get confident on the continuation of the aforementioned downtrend. Something like that could initially aim for our next support of 0.8540 (S2). Our short-term oscillators support our choice to wait for a dip below 0.8580 (S1). The RSI rebounded from near its 30 line, while the MACD, although negative, has bottomed and could cross above its trigger line soon. These indicators reveal slowing downside momentum and raise the likelihood for a corrective rebound before and if sellers decide to take control again. As for the bigger picture, EUR/GBP is still trading above the long-term trend line taken from back at the low of the 18th of November 2015, which keeps the broader uptrend intact. As such, for now, I would treat the recent short-term decline, or any extensions of it, as a corrective move of that longer-term uptrend.
• Support: 0.8580 (S1), 0.8540 (S2), 0.8490 (S3)
• Resistance: 0.8620 (R1), 0.8670 (R2), 0.8705 (R3)
