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Brexit Vote today… What to expect?

BREXIT VOTE TODAY….WHAT TO EXPECT?

The Brexit debacle is one fundamental event that has created a thorn in the flesh of interested market participants as it has lingered for too long. The UK voted to leave the European Union (EU) in June 2016 with a transition period from then up until February 2018 which was further extended by another year as the Theresa May government and the EU couldn’t get a mutually accepted deal. All through the extended period the two negotiating parties came to terms with an agreeable deal which is now currently rejected by the UK parliament majorly on the back of the “Irish Backstop”. The UK government and Brussels have “done their best” to reassure the UK parliament that the Irish Backstop issue wouldn’t be a problem, however majority of  UK MPs have pointed out that nothing has changed and “reassurances” don’t hold water hence they would be looking to vote down her proposed Brexit deal today at least by most!

Brexit Vote is Scheduled at 20.00GMT (8pm)

 

WHAT TO EXPECT?

Scenario 1 – Deal Rejected

This is the base case scenario as the consensus is that Theresa May wouldn’t get the required vote for the deal acceptance. However, the actual catch in this scenario is the magnitude in which she is expected to lose the votes. If it is marginal, there is a high likelihood that the UK government would continue as usual and possibly go ahead for a fresh renegotiation with the EU for a more acceptable deal. The other possibility is that she loses significantly and then opens room for a ‘no confidence vote’ and a possible leadership challenge.

For this case, the likely knee-jerk reaction is to short the GBP, however it is not as clear-cut following the aforementioned dynamics. It would advise that you wait this out before going in.

 

Scenario 2 – Deal Accepted

This scenario is highly unlikely, thus its occurrence will drive in significant surprise into the market. The British Pounds (GBP) all through 2018 is the most underperforming currency amongst G10 counterparts as Brexit uncertainty risk capped possible gains even after the Bank of England hiked interest rates. If Brexit deal is voted yes, then there is viable room for the GBP to surge higher to catch up with its potential value. We see the 1.4000 area for the GBP/USD as a plausible target (price is currently trading around the 1.2800 and 1.2900 area as this is being published).

If this is the case, traders can look to go long the GBPUSD or short the EUR/GBP.

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