Yesterday evening was a total disaster in the House of Commons. After hours of discussion, MPs passed on all eights Brexit alternatives put to vote.
As expected the “no deal” plan B didn’t receive much love (160 for and 400 against), just as the “revocation to avoid no deal” (184 versus 293). The “confirmatory public vote” is the one that was viewed more favourably but it was still short of 27 votes (268 versus 295).
The “customs union” with the EU was also one of the most popular, but unable to get the majority for approval. The results suggested that the Tories would rather leave without a deal, which also suggests that any replacement for Theresa May should be a harder Brexiter than the current Prime Minister. Theresa May hasn’t decided yet whether she’ll put her deal to vote one more time before the end of the week. After two rejections, it would most likely suffer a similar fate, even though she promised to resign should the deal passes.
GBP/USD has been trading in a volatile range since the beginning of the week. Starting late European session yesterday, the cable fell roughly 1% to 1.3140 and has been grinding slightly higher since then.
Looking at non-commercial positioning data from last week, as reported by the CFTC, we notice that speculators were reluctant to play the Brexit game as they mostly stayed out of the market. In the option market, 1-week ATM implied volatility rose slightly to 15.41%, while the 1-week 25-delta risk reversal measure eased slightly to -1%, which suggests that puts have more in demand that call contracts.
The situation is also impacting safe haven currency pairs as the prices of put options on USD/JPY have rose compared to call options. Surprisingly, the ones on the Swiss franc have moved in the opposite direction, which may suggest that Switzerland may not be able to avoid the damages from a hard Brexit on the EU economy.
Disclaimer: While every effort has been made to ensure that the data quoted and used for the research behind this document is reliable, there is no guarantee that it is correct, and Swissquote Bank and its subsidiaries can accept no liability whatsoever in respect of any errors or omissions, or regarding the accuracy, completeness or reliability of the information contained herein. This document does not constitute a recommendation o sell and/or buy any financial products and is not to be considered as a solicitation and/or an offer to enter into any transaction. This document is a piece of economic research and is not intended to constitute investment advice, nor to solicit dealing in securities or in any other kind of investment.
Although every investment involves some degree of risk, the risk of loss trading off-exchange forex contracts can be substantial. Therefore if you are considering trading in this market, you should be aware of the risks associated with this product so you can make informed decisions prior to investing. The material presented here in not to be construed as trading advice or strategy. Swissquote Bank makes a strong effort to use reliable, expansive information, but we make no representation that it is accurate or complete. In addition, we have no obligation to notify you when opinions or data in this material change. Any prices stated in this report are for information purposes only and do not represent valuations for individual securities or other instruments.