Is the UK Parliament vote a chance to buy pounds!? A summary of the vote and the subsequent flow!!

For the United Kingdom and the pound, a highly anticipated event is approaching.

Emails warning of sudden movements and widening spreads are starting to arrive from various FX brokers, banks, and securities firms on the day.

I think this highlights how much attention there is on the Brexit bill vote in the UK Parliament.

This time, these are my personal opinions, but I have summarized the current situation and future prospects!

◎ Strategy

Pound buying strategy

This is unprecedented, so I’m considering several scenarios. Among them, I’ve developed a strategy based on the most plausible scenario.

～Personal Story～

Parliament votes down – wants to avoid a no-deal Brexit – EU or Brexit bill accepts revisions – either a negotiated withdrawal or a second referendum

I think it will be difficult for the current Parliament to approve. However, the UK does not want a no-deal Brexit, and the EU feels the same. Therefore, I expect one side to make concessions.

The current level of the pound has already priced in most negative factors. To push it lower, the possibility of a no-deal Brexit would be needed. The possibility of a no-deal Brexit equals a vote down in Parliament, I think. So, if the parliamentary vote is defeated, I expect the pound to be sold. However, defeat does not mean no-deal Brexit is certain, so I think the downside will be limited.

GBP/USD Weekly chart

As mentioned in previous blog posts, if the vote is defeated, the pound could fall to around 1.2500. If it becomes a no-deal Brexit, 1.1700 is expected.

As stated above, neither the EU nor the UK wants a no-deal Brexit, so at some point they will move toward an agreement. If that happens, the pound that fell may turn upward.

This strategy carries high risk. The pound could continue to fall. Also, this strategy assumes no no-deal Brexit. If the rift between the UK and the EU grows large and a no-deal Brexit occurs, the pound could fall sharply.

Two years ago, a Brexit that many thought would not happen did occur. This time, the possibility of a no-deal Brexit remains.

However, I also think there is a big upside. If a withdrawal agreement is reached or if Brexit is avoided altogether (Brexit doesn’t happen), the pound could surge.

I want to build buy strategies with careful risk management, considering the risk-reward balance.

A stormy pound forecast… Will Brexit bill approval become a historic week!?

◎ Vote and future outlook

From here, I’d like to summarize the results of the vote and the future path.

First, if the vote passes, negotiations toward Brexit preparation for March 29 will proceed calmly.

However, if it fails, several possible scenarios emerge.

1)Convince Parliament again to reach a withdrawal agreement

Parliament defeats the bill, but Prime Minister May persuades and negotiates with various parties to secure an agreement on this Brexit bill. However, given the extensive prior persuasion and negotiation that led to defeat, the likelihood of securing agreement on the same Brexit bill is low. If time passes without agreement, the possibility of no-deal Brexit increases.

2)Seek revisions at the EU summit

The Brexit bill is under review for five days. During this process, revisions are proposed to the EU, and an agreed, revised Brexit bill is sought. However, whether the EU will accept revisions is unclear. Recently, President Tusk indicated that if this Brexit bill is defeated, it would be no-deal or no-Brexit, suggesting revisions may not be accepted.

3)Postpone the March 29 withdrawal deadline

If withdrawal occurs on March 29, approval would be required within the year or by January next year. Therefore, there is a possibility to continue negotiations with the EU and postpone withdrawal to March 29. To do that, the UK Parliament would need to approve the delay and request it from the EU. It is unclear whether the EU would agree. If the deadline is extended, the transition period may be shortened. That could be a key point.

4)General election

Prime Minister May might resign herself, or a challenge to May from within the Conservative Party could arise. A vote of no confidence could be brought in Parliament. It seems unlikely that anyone would want the role of UK Prime Minister at present. So no-confidence or removal of May seems unlikely. If an election occurs, a change of government from Conservative to Labour could happen, though unlikely. If hardline Conservative peers gain power, the likelihood of no-deal Brexit increases. If Labour takes office through a government change, a second referendum could occur, though unlikely.

5)Defeat = No-deal Brexit

If defeated, a declaration of no-deal Brexit could be announced immediately or after waiting until March 29. The timing is a key point.

6)Cancel Brexit itself

If the Brexit bill is rejected and no no-deal Brexit is acceptable, Brexit itself could be rendered moot. Would UK Parliament need approval to cancel Brexit, or would a second referendum be required? This also seems pivotal. Public sentiment is another factor. Can proud Britons overturn a decision made by a prior referendum? This is something only residents may truly understand.

As you can see, there are many plausible scenarios, each with further options after them. Therefore, I think it is necessary to consider as many scenarios and strategies as possible and be prepared.

While writing this article, I found a timely reference and have attached it.

Also, in constructing this narrative, I consulted information from DMM Salon “FX Style” by Mr. Matsuzaki.