GBP/USD Daily Forecast – Sterling Pares Gains On Expectations of Brexit Delay

Expedited Timeline for Brexit Denied in Parliament

Boris Johnson put forward a proposal to expedite the timeline to pass legislation required for an orderly EU exit yesterday, but failed to get the votes. Without expediting the timeline, parliament probably won’t finish the required processes in time for an exit by October 31.

The UK parliament opted to pass legislation first before voting on the actual Brexit deal itself, in a special sitting this past Saturday. The expedition vote didn’t pass as many lawmakers expressed concerns over thoroughly examining the 115-page bill in such a short time.

With the clock winding down, Johnson has decided to suspend further efforts on the bill until the EU responds to the extension the UK asked for on Saturday.

Johnson Suspends Bill Proceedings Until EU Responds to Extension Request

Johnson appears to be contradicting himself as a long advocate of getting a deal done and now suspending the process. However, it seems like he is trying to push EU officials in making a decision.

One theory is that the EU was likely sitting on their hands, waiting to see how things unfolded in parliament this week. After all, there is not much need for them to grant an extension had parliament accomplished what they needed to push through the Brexit deal negotiated last week.

But Johnson now wants to know which way the EU will go on the situation. As I see it, EU officials have two options. They can grant an extension to January, as requested and set out by the Benn act. Alternatively, they might push for a technical extension, a short period to allow parliament to continue pursuing the current deal on the table.

Johnson will push for a general election if there is a lengthy extension and this will create all sorts of uncertainties. It would not be surprising if the pound to dollar exchange rate gave back its over 6% gain since October 9th in such a scenario.

Technical Analysis

The decline in GBP/USD on Tuesday has resulted in a bearish reversal candlestick pattern on a daily chart. But aside from that, yesterday’s developments also warrant further losses.

The area of support I have my eye on falls at 1.2738. This level carries confluences with the 200-day moving average.

I expect the next catalyst will come from the EU’s response to the extension request. As mentioned, a technical extension should be positive for the pair and stands to shift sentiment back to bullish.

Bottom Line

• A Brexit deal is not likely to happen by October 31 after Johnson failed to expedite the withdrawal bill.
• The EU needs to respond on the request made for an extension on Saturday.
• A short technical extension would put the positive Brexit sentiment on track.
• A lengthy extension would accompany all sorts of uncertainties. It is likely to accompany further losses for the pound to dollar exchange rate.