GBP/USD: Pound gains meet a pause, but could see further upside in the near-term

Cable ran into resistance around 1.3260-90 overnight before retracing a little

ForexLive

It looks like the pound is primed for a major breakout as we move towards the final weeks of the Brexit deadline. After May’s statement yesterday, there is very little to perceive how this could end badly for the pound over the next few weeks.

With May offering to give parliament an opportunity to vote against a no-deal and vote to delay Brexit in two weeks’ time, she’s basically securing a win for today’s Brexit motion. That means she would be allowed more time to negotiate with Brussels to bring back a meaningful vote by 12 March.

From here, there will only likely be two possible outcomes. The first, being that parliament miraculously backs May’s meaningful vote on changes to the political declaration. That will indubitably see the pound skyrocket as May will merely go back to Brussels and sort out formalities in the EU Summit on 21 March.

The second other outcome is parliament wrestling back some control of the Brexit process by voting down a no-deal option and then choosing to extend Article 50. The only way this comes about is if parliament votes down May’s meaningful vote in the first place. But the issue with this here is that delaying Brexit with no further compromise in sight isn’t going to solve anything between the UK and the EU.

This is merely but kicking the can down the road. But the relief for the pound will be at least this avoids a no-deal Brexit outcome by 29 March. I reckon the pound will gain on the initial reaction to a vote against a no-deal option but in the aftermath, this wouldn’t really lead to anything else.

However, if we do start to walk down the path of a second referendum, that’s going to be yet another tailwind for the pound in the near future.

Hence, looking at the above scenarios, risk is starting to skew towards the upside now for the pound rather than move lower. For cable, watch out for the break of 1.3300. That could lead to more significant upside towards 1.3500 at least I reckon.