The postponement of the key Brexit vote has hit GBP/USD and put UK Prime Minister Theresa May’s political future at stake. Heading into year-end, plenty of risk events to keep volatility high and safe-haven currencies bid, especially JPY, writes Amelia Bourdeau Tuesday.

May’s unsuccessful European tour

After postponing today’s key Brexit vote in Parliament, UK PM May set off on a European tour to attempt to shore up support for a re-negotiation of the exit terms with European leaders. So far, her attempt appears unsuccessful as both German Chancellor Merkel and European Commission President Juncker have said no renegotiation is possible.

Downing Street has said that the vote on Brexit terms will now take place “on or before January 21.” 

48 letters loom

Meanwhile, back in the UK, May’s own political party has begun to rebel. Some Tory members of Parliament have announced they have submitted their letters of no confidence in May. A no confidence vote will be triggered when 48 letters have been submitted. So far, 28 members of Parliament have said publicly that they have submitted letters.

Pound takes a beating

When the December 11 Brexit vote was cancelled, the British pound/U.S. dollar (GBP/USD) broke downside through support at 1.2700. With the news that no confidence letters were being submitted, GBP/USD moved lower still. (see chart).

Tuesday, traders tested the 1.2500 support – GBP/USD hit an intraday low of 1.2492. This was the first time GBP/USD traded below 1.2500 since April 2017.

Chart: GBP/USD (source: Bloomberg)

chart 1

A decisive push below 1.2500 for GBP/USD may be the trade to end the year or start 2019.  Macro traders love dates and we have been given the “on or before” January 21 notification date of the postponed Brexit vote.

Watch GBP/USD short term volatility – it jumped ahead of December 11 (the original date of the vote). 

Chart: GBP/USD 1-week ATM volatility (Source: Bloomberg)

chart 2

JPY strength lurks

Heightened uncertainties for markets heading into year-end include: Brexit uncertainty, protests in France, unresolved budget negotiation between the EU and Italy, and now President Trump threatening a possible U.S. government shut down in December if he does not get funding for a border wall. 

With risk abounding, JPY may also strengthen into year-end vs. USD, EUR and GBP – becoming the safe-haven currency of choice. 

The chart below shows GBP/JPY – support comes in at 140.00 and then 139.14 area.  One can see the move lower in 2016 post the BREXIT referendum result to 130.00 area and then subsequently to a low of 121.61.

Chart: GBP/JPY (Source: Bloomberg)

chart 3

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Watch Amelia Bourdeau in a short video: Never waste a crisis when trading.
Recorded: TradersExpo Las Vegas, Nov. 13, 2018.
Duration: 2:58.

Amelia Bourdeau: Trading volatility, in a short video.
Recorded: TradersExpo Las Vegas, Nov. 13, 2018.
Duration: 4:31.