A short pause before Round Three

Sterling buyers are preparing for ‘Meaningful Vote Round three’.

100-odd pips have been trimmed from sterling/dollar nine-month highs and similar off euro/pound’s two-year best. That’s ‘cruise control’ relative to this week’s gyrations, the biggest since 2017. But it’s a sign that despite slumping hedging demand, market sangfroid only goes so deep.

High probability of another Brexit deal defeat does not preclude more harsh trading conditions. The market, like Westminster, doesn’t quite know what it believes; Friday’s open was below Thursday’s close. As the old American saying goes: ‘stand for something, or you’ll fall for anything’. So will sterling. Partly because it’s difficult to project a clear view from Parliament next week, even after the government’s ultimatum to expect “a significantly longer” extension if the deal is voted down again.

The EU’s 21^st-22^nd March summit, which is unlikely to re-open backstop discussions, will be followed by a way-finder vote days before Britain’s planned exit. 3D impenetrability means the pound can’t stay on cruise control for long.

Chart thoughts: GBP/USD

• Settles into a $1.3340-$1.3094 range, though the destruction of a 48-hour uptrend in itself reflects the end of optimal conditions for bulls
• That said, so long as the range is intact, logically, drama will be limited
• Possible incursions above the topside are hinted at by short-term up-creep by shorter and medium-term oscillators
• Over the short horizon, offers will be more intense at Thursday’s $1.333 intermediate peak, reducing odds of another look at the $1.3383 top
• Below $1.3094 would herald extended downside

Price chart: sterling/U.S. dollar - hourly