Brexit 2019 Update: The End of the Road is Nigh
Several days before the UK was due to leave the EU on March 29, MPs voted on a series of eight alternative Brexit options. All of them were rejected, creating huge price swings in UK markets.
As the clock counts down towards European elections in May - a time Brussels has told the UK it needs to decide on what it wants - there are limited options for Theresa May's government. Ultimately, UK markets are ready for some definitive news and could explode to levels not seen for months.
Today, we outline all of the possibilities left for Brexit 2019 and how recent events are shaping UK markets right now.
Brexit 2019: The Road So Far
Theresa May has struggled to unite parliament behind her Brexit deal. May was forced to go back to the European Union and ask for an extension to Article 50, in order to delay Brexit which was due to happen on March 29.
Since then, May has offered her resignation to her party members in order to get her deal voted through. While many members switched sides and moved to support her deal, it has not been enough. There are now only a few possible outcomes left, which could trigger a series of unprecedented events and explosive trading opportunities.
Brexit 2019: What Happens Now?
1. Another Vote On Theresa May's Deal
If MPs can get behind a single plan, the government claims the UK will be able to leave the EU on May 22. However, there is a longstanding tradition that MPs should not be asked to vote twice on the same question during a single session of parliament.
May's deal has already been rejected twice, making a third vote difficult unless changes have been made to the deal or MPs are asked a different question. However, there has been some talk of splitting the vote on the binding Withdrawal Agreement from the non-binding political declaration of the future UK/EU relationship, to circumvent the voting issue.
If MPs still cannot agree on a plan, then the default outcome is for the UK to crash out on a no deal Brexit.
2. A No Deal Brexit
As no deal is currently in place, at the time of writing, the default outcome is for the UK to exit the EU with no deal on April 12 - before the European elections.
While a no deal Brexit is likely to be a negative for the British pound, MPs have previously voted to reject this option entirely, which is just one reason the pound has not sold off aggressively - for now.
3. A Major Brexit Renegotiation
As it stands, there are not enough MPs to vote May's Brexit deal, through but there are enough MPs to continue to oppose a no-deal scenario. This deadlock demands that a new process for reaching an agreement has to be considered.
Of course, these are uncharted waters. One possibility would be a major Brexit renegotiation. However, this would require a much longer delay to Brexit, meaning the UK would have to take part in the European Parliament elections in May - something Brussels wants to avoid.
A renegotiation could lead toward an agreement of the other styles of deals that have been suggested such as the Canada plus deal or Norway model, which will give the UK closer ties to the EU than May's current deal. However, if the EU refuses to enter re-negotiations the UK government will have to consider one of the other options.
4. Another Vote Of No-Confidence
While Theresa May's Conservative Tory party survived a vote of no-confidence on January 16, opposition party Labour could table another vote of no-confidence at any time.
If the May's government wins - again - then the government will continue with their plans. However, if she loses, a new government could be put in place or a general election called.
5. A Proposal For An Early General Election
As the UK parliament is currently in deadlock, May could decide holding an early general election is the best way to break it. However, she doesn't have the power to call an election so will have to ask MPs to vote for an early election.
If two-thirds of MPs approve, then the country will go to the polls to vote for the political party they want. If less than two-thirds of MPs approve then the government will have to reconsider one of the other options.
6. A Second Referendum
Many individuals are calling for a second referendum. In fact, a Brexit petition put to the UK Government and Parliament Petitions website has received more than five million signatures. However, a second referendum is no easy option.
As the UK voted to leave the EU, many politicians believe a second vote would be going back on their promise to fulfil the first vote. Even if the government decided to press ahead with a second referendum a new piece of legislation would have to be made to determine the rules and questions which could take around 22 weeks.
7. The UK Revokes Article 50
As the government is still committed to Brexit, it is unlikely they will revoke Article 50 without having a second referendum or general election first. However, the European Court of Justice has ruled that it would be legal for the UK to cancel Brexit without the need for an agreement from the other 27 EU nations.
Even if Theresa May quits as prime minister, or a vote of no-confidence is called on her from her own party, the new prime minister will still have to lead the UK in one of the options above. All of these options can offer high amounts of volatility in UK markets. In fact, the impact has already been felt in some, as we will highlight below.
Brexit Impact On UK Markets
In the long term, the British pound continues to struggle for direction, trading in between the 1.3320 and 1.2650 price levels, as shown by the two horizontal blue lines in the weekly chart of GBPUSD below:
Source: Admiral Markets MT5 Supreme Edition, GBPUSD, Weekly - Data range: from May 28, 2017, to March 28, 2019, accessed on March 28, 2019, at 9:44 pm GMT. - Please note: Past performance is not a reliable indicator of future results.
Traders of support and resistance levels would typically look to buy and sell of these levels using powerful combinations of trading indicators and price action to help in timing and risk managing their trades appropriately.
The weakness in the British pound has helped international demand for undervalued UK assets as the chart of the FTSE 100 - which tracks the largest one hundred companies listed on the London Stock Exchange - shows below:
Source: Admiral Markets MT5 Supreme Edition, FTSE 100, Daily - Data range: from June 29, 2018, to March 28, 2019, accessed on March 28, 2019, at 9:50 pm GMT. - Please note: Past performance is not a reliable indicator of future results.
While opportunity may favour the brave, it may prove wise to use supportive tools such as stop losses and volatility protection settings to minimise trading risks while trying to maximise any gains.
With both the UK's currency and stock market providing strong trading opportunities - in this once in a lifetime event - can you afford to miss out any longer?
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